Dive Brief:
- The regulatory cost of building new homes is so high that homebuilders and developers are reporting that it is preventing them from offering entry-level homes at prices that first-time buyers can afford, CNBC reported.
- In California, where home prices have grown at an astronomical rate, builder Taylor Morrison reported that county, state and federal fees can add as much as $50,000-$100,000 to a new home’s price tag.
- Regulatory compliance has pushed up the price of a new home by an average of 30% in the last five years, according to the National Association of Home Builders, and makes up 24% of its cost.
Dive Insight:
According to CNBC, developers are not able to increase their profits by maxing out building on their land because many regulations now mandate features like preservation of green space and walking trails. John Burns of John Burns Real Estate told CNBC that regulatory mandates around erosion control, energy codes, fire sprinklers and increased mortgage documentation requirements are positive for the larger community and for the environment but are preventing homebuilders from offering homes at prices that would be affordable to most first-time buyers.
Burns told CNBC that DR Horton is currently the only homebuilder that can afford to offer an entry-level product due to the massive number of homes the company builds.
In a Zillow report last month, the real estate company found that entry-level home prices are increasing at a greater pace than other types of homes in more than 50% of the biggest markets in the U.S., largely due to a 10% year-over-year decline in available starter inventory. Trulia reported that inventory for available entry-level homes had fallen 43.6% over the last four years to a share of 27.7%, while prices increased 5.6%.
In even more bad news for first-time buyers, the battle-scarred Gen Xers, after taking the biggest hit out of all demographics in the housing crash, are coming back into the market after renting for years and are putting even more pressure on the market for affordable homes. Instead of competing with millennials, analysts said that Gen Xers were supposed to be trading up to larger homes by now, helping to create a robust first-timer inventory. Instead, they've left a "hole" where those existing home listings should be.
