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Executive actions aimed at reducing housing costs by cutting regulations and increasing supply are being considered, but their effectiveness hinges on implementation at state and local levels. With housing affordability at a multi-decade low, the core challenge is a shortage of homes. A significant portion of a new home's price—nearly a quarter, according to one industry study—is attributed to regulatory costs. This analysis examines the potential impact of federal initiatives on the housing market.
Understanding the breakdown of home construction costs is key to addressing affordability. A 2021 study by the National Association of Home Builders (NAHB), a major industry group, provides specific data. The study found that regulations imposed during the land development and construction phases add significant costs.
These regulatory costs include fees for permits, inspections, and compliance with zoning and environmental rules. According to the NAHB, these regulations typically account for $93,870 of the final price of a new single-family home. Based on the average sales price at the time of the study ($397,300), this represents 23.8% of the total cost. This figure highlights the substantial financial impact of the regulatory framework on new housing supply.
Proposed federal solutions focus on two main avenues: streamlining regulations and opening up land for development.
Reducing Regulatory Barriers: The primary focus is on encouraging a reduction in what is often termed "regulatory red tape." The goal is to make it faster and less expensive for builders to complete projects. However, the vast majority of construction permits and zoning regulations are issued at the state and city level. This limits direct federal control, making it a challenge to implement sweeping changes. Effective action would likely require incentivizing local governments to revise their policies.
Utilizing Federal Land: Another discussed measure involves opening portions of federal land for large-scale residential construction. The concept is to create zones with streamlined processes to encourage rapid development of more attainable housing. Economists see this as a more direct approach in certain areas, provided it includes coordination with local governments and addresses environmental considerations.
While the intent to boost supply is clear, these strategies face practical hurdles.
A significant limitation of the federal land proposal is geography. The U.S. government owns about 27% of the nation's land, but it is concentrated largely in the West. In many other regions, and particularly near major employment hubs where housing demand is highest, there may be little to no federal land available for such projects.
Furthermore, policies that directly subsidize buyer demand, such as large tax credits for down payments, have been avoided in these discussions. Economists often caution that injecting additional demand into a supply-constrained market can lead to higher prices, negating the intended affordability benefits.
Based on our experience assessment, the long-term solution to housing affordability centers on increasing the supply of homes. Federal initiatives can set a national tone and provide incentives, but tangible progress depends on action closer to where building occurs.
