A study released earlier this month (July 5, 2011) by Paul Emrath at the National Association of Homebuilders (available at www.housingeconomics.com) estimates that local regulation adds significantly to the cost of new housing, even during recessionary times. The study was based on a survey of homebuilders with land development experience.
Their conclusion? Nearly 9 out of 10 respondants said that the regulatory process resulted in higher costs, but in the pre-approval and post-approval stages of land development. On average, regulatory costs account for about 57 percent of the cost of a finished lot according NAHB based on the survey of developers. Six percent is due to the “pure” cost of delay, and 16 percent is due to changes in development standards applied to the lot. About 12 percent of the regulatory burden on securing development approval occurs before the approval process, and 13 percent is incurred after approval but before construction begins. Only about 10 percent of the regulatory burden is attributed by developers to the cost of having dedicated but unbuilt land.
NAHB estimates these regulatory costs imposed on land development account for 16.4 percent of the final home price passed on to the buyer.
The entire report (exclusing appendices) is about 13 pages and worth spending the time to read.
Interestingly, this is not that far off from estimates of regulatory burden produced by other researchers, including Reason Foundation. (See our studies on here and here.)