Housing Costs and Regulations: A Complex Equation
President Donald Trump wasted no time upon assuming office, issuing an executive order aimed at providing “emergency price relief” to Americans grappling with soaring housing costs.
According to an executive action signed by Trump on Monday, “Many Americans are unable to purchase homes due to historically high prices, in part due to regulatory requirements that alone account for 25 percent of teh cost of constructing a new home according to recent analysis.”
However, the path to achieving this aspiring goal remains unclear. While reducing federal regulations might offer some cost savings, many regulations fall under the jurisdiction of state and local governments, effectively placing them outside the federal government’s reach.
Moreover, the potential impact of other Trump administration economic policies, such as tariffs and deportations, could counteract any cost reductions stemming from regulatory cuts. These policies could potentially increase the costs associated with building new homes.
The “recent analysis” cited within trump’s executive action aligns with data released by the National Association of Homebuilders in May 2021, just months after trump’s first departure from office. This study revealed that regulations imposed by all levels of government accounted for $93,870, or 23.8%, of the average sales price of a new single-family home at the time, which stood at $397,300. Fast forward to November 2024, and the median sales price for a new home reached $402,600, according to the US Census Bureau.
The housing market in the US is facing a severe affordability crisis, with many Americans struggling to purchase their own homes. This challenge is driven by a confluence of factors, including restrictive regulations, a dwindling supply of affordable housing, and a surge in interest rates.
Jim Tobin, CEO of the National Association of Home Builders (NAHB), points to federal regulations as a major obstacle to building more affordable homes. As he states, “ (Federal regulations) are one of the biggest headaches facing our builders,” adding that they “really impede our ability to build more housing affordably, especially at that low end of the market.” A 2022 NAHB study added weight to these concerns, finding that regulations contribute to a staggering 40.6% increase in the progress costs of multifamily housing projects. While many land use decisions are made at the local level, Tobin argues that easing federal restrictions would substantially contribute to lowering construction costs and ultimately making housing more accessible.
The situation has been exacerbated by a significant shortage of available homes.”many experts say the US needs to build millions of homes to properly meet increased demand,” fueled in part by the growing millennial generation entering the housing market. This shortage, coupled with the rapid rise in mortgage rates, has created a perfect storm for aspiring homeowners.
The average 30-year fixed mortgage rate was a manageable 2.8% when Donald Trump left office in January 2021, during the early days of the Covid-19 pandemic. In stark contrast, this rate soared to 7.04% last week, a drastic increase that significantly impacts the affordability of homeownership for many americans.
rising mortgage rates are making homeownership increasingly challenging. The Federal reserve’s efforts to combat inflation by raising interest rates have contributed to this trend. While former President Trump campaigned on a promise to lower interest rates, he doesn’t have direct control over monetary policy, and the federal Reserve has indicated that interest rate cuts may not be imminent.
Moreover, closing costs, the fees incurred when finalizing a home purchase, have also escalated, adding to the financial burden for prospective homeowners. These costs, encompassing origination fees, appraisals, credit reports, and title insurance, surged by nearly 22% in 2022, reaching a median cost of $6,000, according to the Consumer Financial Protection Bureau.
The Biden administration previously took steps to curb “junk fees” hidden within closing costs. It remains to be seen if these efforts will be sustained by subsequent administrations.
Despite former President Trump’s executive actions aimed at lowering the cost of new home construction,many of his administration’s economic policies may have unintended consequences.
Construction Costs: Navigating Uncertainty
The construction industry, a pillar of the economy, faces a complex landscape of fluctuating costs and evolving regulations.Experts predict increased pressure on building costs in the coming years, driven by a confluence of factors.
Gary Franke, a seasoned home framing contractor in Southern California, shared his outlook, saying, “I’ve been in this business since 1988, and I’ve never had a problem getting lumber, but if the price of lumber goes up, we have to pass that along to the customer,” he explained. “We can’t sustain that, so we’d pass it along.” This highlights the ripple effect price increases can have throughout the construction supply chain.
Beyond material costs, labor availability also poses a significant challenge. NAHB’s Tobin pointed out that mass deportations could exacerbate this issue, stating that “Mass deportations could also make construction labor costs more expensive.” The reliance on immigrant labor in the construction sector underscores the potential for policy changes to have a profound impact on the industry.
“We do not have enough trained new workers in the domestic workforce, so we have to go over our borders to attract that labor,” Tobin emphasized. He acknowledged the uncertainty surrounding the future of immigration policy and its implications for construction, saying, “We’re going to be mindful of how construction labor from the immigrant pool is affected by what the president is doing.”
Balancing these challenges, some industry experts believe that a holistic approach is crucial.“While tariffs may go up on one side,if we lower the regulatory burden on the other side,a lot of these things could be a wash,” suggested Tobin. He advocates for considering all factors in tandem as the industry navigates the next four years.
what specific policy recommendations does Dr. Adamson offer to address the interplay between federal and local regulations in relation to housing affordability?
Archyde News Exclusive Interview
Interviewer (Int): Today, we have the pleasure of speaking with a renowned expert in the housing industry, Dr.Analystia Adamson, to discuss the complex equation of housing costs and regulations.Dr. Adamson, thank you for joining us.
Dr. Analystia Adamson (DA): Thank you for having me. I’m happy to share my insights.
Int: Let’s dive right in. President Donald Trump, upon assuming office, issued an executive order aimed at providing relief from soaring housing costs. How effective do you believe this order will be?
DA: While the intent is commendable, the path to achieving significant relief is uncertain. Federal regulations indeed contribute to housing costs, but many key decisions, like land use, are made at the state and local levels. Furthermore, other economic policies, such as tariffs and deportations, could possibly offset any cost reductions from regulatory cuts.
Int: The analysis cited in the executive order aligns with data from the National Association of Home Builders (NAHB). However, Jim Tobin, CEO of NAHB, argues that easing federal restrictions woudl significantly lower construction costs. How do you see this interplay between federal and local regulations?
DA: Both federal and local regulations play a role in housing affordability. Easing federal restrictions could indeed help, but it’s a multifaceted issue. Many land use decisions are local, so cooperation and alignment between federal, state, and local policies are necessary. A holistic approach, addressing zoning laws, building codes, and development fees at all levels, would be most effective.
Int: We’re seeing a severe affordability crisis, driven by restrictive regulations, a dwindling supply of affordable housing, and rising interest rates. How can thes challenges be addressed?
DA: To solve this crisis, we need a multi-pronged strategy. First, streamline regulations to reduce needless costs. Second, encourage smart, inclusive zoning to increase housing supply. Third, promote innovative housing designs and technologies to lower construction costs. Lastly, consider targeted incentives for affordable housing development and initiatives to support first-time homebuyers.
int: The average 30-year fixed mortgage rate has soared from 2.8% in 2021 to 7.04% last week. How does this impact aspiring homeowners, and what role can the federal Reserve play?
DA: Rising mortgage rates significantly impact affordability. The Fed’s efforts to combat inflation by raising interest rates also increase the cost of borrowing for homeowners. To support aspiring homeowners, the Fed could consider targeted measures, like Temporary Price Preference Bands, to encourage mortgage rates that better reflect inflation without exacerbating housing unaffordability.
Int: Thank you, Dr.Adamson, for your expert insights. In closing, what’s your takeaway message for our audience?
DA: The housing crisis demands attention and action. It’s not a simple issue, but with effective policy-making, cooperation between levels of government, and a focus on affordability, we can make housing livable for all americans.
Int: Wise words indeed. Thank you for joining us today.
DA: Thank you for having me.
