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Home Builders Detained by Rising Compliance Costs

money-houseHome builders have hit a roadblock. The ramped up regulatory environment has made it difficult for builders to produce affordable homes.

Regulations put in place to protect the environment and to shore up local city finances are holding back affordable home building, according to a report by Jody Kahn, SVP of John Burns Real Estate Consulting.

“Now, more than ever, the demand for affordable entry-level housing will need to be met by the resale market, since new homes have become permanently more expensive to build,” Kahn stated.

In a survey of more than 100 home building executives across the U.S., John Burns determined what new home construction costs have come into play that did not exist 10 years ago and which markets have been affected most by regulation. Builders identified local issues with compliance in the Florida, Southeast, Northeast, Midwest, Texas, Southwest, California, and Northwest markets.

John Burns' National Issues Mentioned Over and Over by Home Builders:

  • $5,000+ per house erosion control costs. Stormwater Pollution Prevention Plan (SWPPP) compliance costs, even in areas that rarely get rain, can now total $5,000+ per home plus fines for noncompliance. Many builders hire newly formed companies to plan, sandbag, sweep, monitor, photograph, and clean up the entire development every day, regardless of the weather forecast.
  • $2,500+ energy code costs. Several builders in Florida, Illinois, Minnesota, Pennsylvania, and California cited $8,000 or more per house in new energy code costs.
  • $750+ mortgage documentation and closing costs. While we expect the cost to comply with new mortgage documentation requirements to exceed $750 per home, one builder noted that the new TRID mortgage compliance rules alone have added at least that much.
  • $5,000+ fire sprinkler costs. In at least 7 markets that we could identify, builders mentioned new requirements to install sprinklers in townhomes, as well as in single-family homes, at a cost of $5,000–$10,000 per home.
  • Understaffed jurisdiction offices. Many planning and permit offices continue to operate with reduced staffing from the bottom of the housing correction, causing costly delays in plan approvals, building permits, and inspections.
  • Utility company delays. Builders across the country complain of much longer than usual delays and rising costs associated with connecting electric, gas, phone, and cable services to new communities.

"While virtually all of these costs appear to come with positive consequences for the environment, neighborhoods, or city finances, they also make it quite difficult for builders to build entry-level homes and, consequently, for the home construction market to recover to normal volume levels,"Kahn stated. "Rising construction costs push new home prices higher and out of the reach of many prospective buyers. Increasingly, home builders have been forced to serve only the more affluent home buyers."

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