Regulatory Burden is Housing's New Labor Crisis

The labor issue is just so 2015, isn't it?

By no means has it gone away.

The level of effort, the cost in dollars, in time, and in idea capital it will take to re-prime the flow of new, trained skilled workers and business talent into the ranks of building trades and home building management tracks has only begun to be recognized, let alone solved. Even in the challenge of replacing people whose paths are out into retirement, residential construction is falling behind.

Still, in light of the specter of another bigger, badder, harder-to-quantify but far scarier issue, home building's labor capacity constraints compare as uptown problems, mere complaints vs. a soul-crushing, annihilator of housing recoveries in the making. As daunting as the labor crunch is, who doubts that money, time, ideas, ingenuity, focus, and to some extent, organic market forces, can and will lead to its solutions and resolutions.

Can the same be said of this issue: regulatory burden?

Regulatory burden is a big issue, not just for home builders and housing, but in other areas critical to a sustainable recovery from one of America's--and the world's--darker economic eras. Here's a quote from the Federal Register, dated Monday, May 14, 2012 (back in ancient history, when presidential election years were sane affairs), from none other than The President:

Regulations play an indispensable role in protecting public health, welfare, safety, and our environment, but they can also impose significant burdens and costs. During challenging economic times, we should be especially careful not to impose unjustified regulatory requirements. .... To the extent practicable and permitted by law, agencies shall also give special consideration to initiatives that would reduce unjustified regulatory burdens or simplify or harmonize regulatory requirements imposed on small businesses. Consistent with Executive Order 13563 and Executive Order 12866 of September 30, 1993 (Regulatory Planning and Review), agencies shall give consideration to the cumulative effects of their own regulations, including cumulative burdens, and shall to the extent practicable and consistent with law give priority to reforms that would make significant progress in reducing those burdens while protecting public health, welfare, safety, and our environment.

Ha! That's almost funny, in light of these facts, four years later. New National Association of Home Builders data from economist Paul Emrath tells us this:

On average, regulations imposed by government at all levels account for 24.3% of the final price of a new single-family home built for sale.

Before we go further, think about this from a big picture standpoint for a moment. What other consumer durable has upwards of 25% of its cost chalked up to government fees, regulations, obligations, taxes, and expense related to delays reaching the market? You'd almost think governments--national, state, county, and municipal--are trying to say, "housing is bad for you, so we're going to make it dramatically more expensive to dis-incentivize you from buying it."

Now, let's look closer at some of the details, as Emrath and the NAHB research team have done some research that has implications that might, instead, incentivize outrage.

Here's how the 24.3% in cost to the new home buyer breaks down further: 14.6% of the final house price owes to regulation at the lot development level, and 9.7% of the final price tag traces to regulation expense in the vertical construction part of the deal.

If that's not the source of anger, frustration, and, potentially, a call to action, what about this?

The dollars.

Emrath and team cite the Census New Residential Sales analysis for dollar figures on average new home prices, comparing 2011 to 2016. What's spotlighted is this: new home sales averaged $260,800 in 2011 and shot up to $348,900, a 25% increase in five years. Here's Emrath's stunner:

Applying the average percentages from NAHB’s studies to these home prices produces an estimate that average regulatory costs in a home built for sale went from $65,224 to $84,671 in the roughly five-year period from April 2011 to March 2016—a 29.8 percent increase. The impact of costs imposed during construction increased the fastest, rising by almost 50 percent, from $22,535 to $33,784, but even the more modest change in the impact of regulation imposed during development ($42,709 to $50,887) represents a 19.1 percent increase.

Here's how that looks in a big, bad picture.

Now, let's apply this to a different data set, a slightly different way. BUILDER sibling company Metrostudy tells us that in 2015, home builders collectively closed right around 430,000 new homes. Calculating. This means that buyers of these homes paid an aggregate $36.5 billion of their home costs to local, county, state, and federal regulators, thank you very much.

Is it any wonder normal, fledgling households, early in what will hopefully be good, solid careers and livelihoods, aren't participating in this insanity?

New home prices have spiraled on a national level by 25% in five years, and government regulation costs on lots and finished homes have shot up almost 30% in the same time period.

Let's look at a possible bright side of that astonishing, terrifying trend. It can go two ways from here. There are a lot of smart people on the operator, lending and investment, and development side of things who think it's only going to get worse, and quickly.

We'd prefer to look at it another--possibly unreasonably optimistic--way. Here's the deal. Builders and developers essentially front the government regulators at every level on the order of $36.5 billion in their efforts to develop, design, construct, and sell homes that become communities, that become tax paying organisms of our national economic ecosystem. That's besides the fact that those 430,000 homes represent a total of $123 billion in local income created, and 1.7 million new sustainable jobs created.

Builders and developers--collectively--have leverage. You can say, hey, we're committing 25% of every home in every community we build toward the well-being and sustainability of communities, counties, states, and the nation, and we want you 1. to use the money responsibly, and 2. to invest in a learning curve so that you can, like us, do more with less. This would be so that people who are trying to get into the homeownership pipeline--the ones who can not either afford $360,000 for their new home, nor who can afford 25% of their home price to go to local, county, state, and national governments.