View From The Top, vol4

By Nat Hodgson
Executive Director
Southern Nevada Home Builders Association
One of the often overlooked impacts of government regulations is the effect on housing affordability. Every time a local or higher level government entity issues a new regulation on the residential construction industry, it raises costs by, for example, increasing the price of permits or fees. Higher costs invariably cause higher home prices, which in turn means that an increasing number of households can’t afford to purchase a home.

The National Association of Home Builders, of which SNHBA is the local affiliate, recently released its annual “Priced Out Effect Report.” The report is based on a NAHB economic model that estimates how many households are priced out of their respective housing markets based on every $1,000 increase in the median price of a new home.

NAHB estimates that 2,044 households are priced out of the housing market for every $1,000 increase in the price of a new home in metropolitan Las Vegas, based on pricing for 2014. This is one of the reasons that SNHBA is a tireless watchdog on the issue of government regulations and fees.

Nationwide, a $1,000 increase in home prices leads to pricing out of about 206,269 households, according to the NAHB model.

Quite frequently and often unintentionally, local regulations raise construction costs and trigger housing price increases. The NAHB report highlights the overlooked effects of regulation on housing affordability. The 2014 estimates show that in relatively affordable metro areas, hundreds and sometimes thousands of households can be priced out of the new home market as a result of prices rising by $1,000.

NAHB research shows that on average, regulations imposed by government at all level account for 25 percent of the final price of new single-family home built for sale. In fact, the final price of the home to the buyers will usually go up by more than the increase in the government fee or requirement. That’s because each time construction costs increase, other costs such as commissions and financing charges automatically rise as well. Most cost increases are passed on to buyers.

The Southern Nevada Home Builders Association estimates that governmental requirements, fees and cost contribute to more than $50,000 of the price tag for a new home in metro Las Vegas. It’s a situation we monitor closely on behalf of our homebuyers.