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With affordability an increasingly serious problem for home buyers and renters alike, a recent study by NAHB and the National Multifamily Housing Council (NMHC) sheds additional light on the ways that regulation drives up costs across the housing spectrum.

The study shows that regulation accounts for an average 32.1% of the cost of multifamily development, and in some cases can reach as much as 42.6%. These findings are consistent with a similar 2016 NAHB study of the impact of regulations on the cost of single-family construction and provide evidence of the pervasive, costly effects of regulations on all types of housing.

2018 NAHB Chairman of the Board
2018 NAHB Chairman of the Board

Like single-family detached construction, apartment and condo developments can be subject to significant regulatory costs, including a broad range of fees, standards, and other requirements imposed by local, state, and federal governments at different stages of the development and construction process.

The NAHB/NMHC study quantifies the impact of those measures on the cost of developing new multifamily homes. The survey included members from both associations across the U.S. Typical projects they build varied from as few as five apartments to more than 400. Total development costs ranged from less than $2 million to more than $100 million.

Breaking down government regulation costs showed that an average of 7% of regulatory costs come from building code changes over the past 10 years; 5.9% of costs are attributable to development requirements (such as streets, sidewalks, parking, landscaping, and architectural design) that go beyond what the developer would ordinarily provide; and 4.2% of the costs come from nonrefundable fees charged when site work begins. Another 4% of the costs are attributable to securing zoning approval for the development, and 3.9% are due to fees that are charged when the construction is authorized.

In addition to costs imposed by various regulations, multifamily developments often incur additional expenses due to public opposition to higher density housing. Among the builders surveyed, 85% reported encountering public resistance that increased the cost of development.

It is important to protect the safety and health of construction workers and ensure that the homes they build are safe, healthful, and resource efficient. However, there is no question that regulations imposed on new-home construction often go beyond what is necessary and contribute to the nation’s worsening housing affordability problems.

NAHB—at the national level and through state and local HBAs and individual members—is engaged in an ongoing battle against overreaching regulations. I’m proud to say we are making considerable progress in this area. At the national level, we have seen costly requirements rolled back due to the Trump administration’s aggressive stance on regulation, and we will be encouraging states and localities to follow the federal lead.

Likewise, our members and staff are vigilant and effective in preventing unnecessary requirements from being imposed through the model codes. Diminishing the effect of regulations on the cost of housing will continue to be one of NAHB’s top goals at all levels. This study, which quantifies the impact of regulations on the cost of new multifamily housing, will be an important weapon in our regulatory battles.