For homebuilders, increasing regulations mean ability to create fewer starter homes

CNBC reports that the costs of new burdensome regulations are not allowing for homebuilders to create much entry-level stock. "Every time you turn around there's a new regulation. If a piece of property has water on it for more than 30 days, it's now considered a wetland. The governments are worried about storms and the nails running into the ocean. Everywhere you turn it's getting more and more expensive to build a home, and it's taking longer to get it built," said John Burns of California-based John Burns Real Estate Consulting.

Compliance costs make up 24 percent of the cost of a newly built home, and as home prices rise that share isn't changing, meaning the costs to buyers is rising. The cost of compliance with government regulations has increased the price of a new home, on average, by 30 percent in the last five years, according to a survey by the National Association of Home Builders.

The supply of entry-level existing homes for sale in the United States is historically low and falling. It would seem like a great opportunity for homebuilders, but instead they are turning away from the product because they simply can't afford the rising costs of both land and new regulations on that land and on construction.

"There is much bigger demand at the entry level. They would love to do entry level. They just need to be able to make money to do it, and it's getting increasingly hard to build a home for less than $250,000," said Burns.

DR Horton, the largest U.S. homebuilder (who has a presence in the Minneapolis-St. Paul market) is one of the few that has an entry-level product.

The full article is available here.

Dawnita Parmely