The Housing Affordability Crisis

There has been a lot of discussion about the Housing Affordability Crisis. I am a member of the National Association of Home Builders (NAHB), the Idaho Home Builders Association (IHBA) and two local affiliates, the Building Contractors Association of Southwestern Idaho and the Snake River Valley Building Contractors Association. As proclaimed in our Mission Statement:

NAHB strives to protect the American Dream of housing opportunities for all, while working to achieve professional success for its members who build communities, create jobs and strengthen our economy.

NAHB and our state and local affiliate associations are constantly working to keep housing affordable

Depending on the source, there is a nationwide shortage of approximately 1.5 million (NAHB) to 4 million (American Planning Association and National League of Cities) housing units. According to the latest Harvard University Joint Center for Housing Studies’ (JCHS) The State of the Nation’s Housing 2024 Report. home prices and rent have both increased — up 26% and 47%, respectively, since 2020.

Rising regulatory costs are a limiting factor on housing supply, particularly for the entry level market in need of inventory. A 2021 study by NAHB estimated the aggregate cost of regulation in the price of a new single-family home in the United States. On a dollar basis, applied to the then current average price? of a new home of $394,300, regulation accounted for $93,870 of the final house price. Of that, $41,330 was attributable to regulation during development and $52,540 was due to regulation during construction.

On a percentage basis, the 2021 estimates showed that regulations imposed by government at all levels accounts for 23.8% of the final price of a new single-family home built for sale.

In dollar terms, NAHB studies showed that the cost of regulation rose 43.9% between 2011 and 2021.

The Average Regulatory Cost is broken down in the Table below:

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According to the Federal Reserve, the median home sales price in the United States as of the second quarter of 2024 was $412,300 – a 4.6% increase.

Applying the 2021 percentages to the 2024 average sales price, the 2024 cost of regulation would be $98,127.

As of today, October 25, 2024, the average interest rate on a 30-year fixed rate mortgage is 6.54% and the average down payment is 14.4%. ?The table below shows the impact of regulatory costs on affordability.

According to the U.S. Census Bureau, the median household income in the United States as of September 2024 was $75,149. The above sales prices equate to 5.5 times and 4.2 times the median household income respectively. The annual principal and interest payments represent 35.7% and 27.3% of the median household income respectively.

Both the federal government and many mortgage lenders suggest that most households spend 30% or less of their income on housing. Mortgage lenders often require principal, interest, taxes, and insurance payments to be less than 28% of income.

NAHB’s recently released Cost of Housing Index (CHI) showed that 38% of a typical family’s income is needed to make a mortgage payment on a median-priced new single-family home in the United States.

Low-income families (earning only 50% of the median income) have to spend well more than half of their income (77%) to pay for the same home.

NAHB is not arguing that all regulation is bad or should be eliminated. Nor is it trying to estimate a share of regulation that may be excessive. The underlying premise is that, in an environment where housing is regulated in a complex way by a variety of federal, state and local entities, it is useful to have a numerical estimate of how much regulation exists and its aggregate dollar value at present when contemplating new policies or revising existing ones.

In addition to cost of regulation and the soaring cost of local impact fees and other upfront taxes, other? problems contributing to the housing affordability crisis include the high cost of building materials (up 38% since the pandemic), a chronic shortage of skilled labor, and the struggle to pass federal tax legislation to decrease the cost of home building.

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NAHB’s 10-Point Plan to Address the Housing Affordability Crisis

With the housing affordability crisis forcing families to spend such a large percentage of their income on a place to live, NAHB has?created a 10-point housing plan?to remove barriers that slow down the construction of new homes at the local and national level.

1. Eliminate excessive regulations.
2. Promote careers in the skilled trades.
3. Fix building material supply chains and ease costs.
4. Pass federal tax legislation to expand the production of affordable and attainable housing.
5. Overturn inefficient local zoning rules.
6. Alleviate permitting roadblocks.
7. Adopt reasonable and cost-effective building codes.
8. Reduce local impact fees and other upfront taxes associated with housing construction.
9. Make it easier for developers to finance new housing.
10. Update employment policies to promote flexibility and opportunity.

One last chart I believe is relevant to the discussion of housing affordability. The chart below shows Builders’ net profit before taxes as a percentage of revenue.

Hopefully, this will help promote discussion and cooperation among all the parties involved – Federal, State and local government officials, the International Code Council, educators, and lenders – to work together to solve the crisis.