The median size of new homes in the U.S. increased from just over 1,500 square feet in 1973 (the first year the Census Bureau began tracking new home size) to 2,309 square feet at its peak in 2007. The median size has declined almost 10% since then. Will the trend to smaller-sized homes persist? Generation X also referred to as the Baby-Bust generation, is much smaller than the Baby-Boomers. However, they currently comprise approximately 22 percent of the adult population. 53 percent of Gen X’ers are now parents and they buy 51 percent of all newly constructed homes. Gen X’ers may prefer larger homes. But they are faced with high home prices driven by decades of strong demand from the Baby Boomers. The housing boom of 2005-2007 created an affordability barrier for these buyers. This affordability barrier combined with the more stringent lending standards and fewer mortgage options resulting from the subprime mortgage fiasco should drive them to purchase smaller, more affordable homes than the Baby-Boomers. The largest group of potential new home buyers is Generation Y, also referred to as Echo Boomers or Millennials. Generation Y are the offspring of the Baby Boomers born between 1980 and 1995. Actually, the Echo Boomers are those born in the five year span between 1989 and 1993 when the number of births in the U.S. exceeded 4 million for the first time since 1964. Within the next 5 years, Generation Y, estimated to number about 74 million, will be entering the prime household formation and home buying ages of 25–44 replacing the far smaller Generation X and reversing declines in that age group created by the much smaller Baby-Bust generation. Gen Y’ers are entering their peak household formation years with more than five million more members than the Baby Boomers had in the 1970s. In fact, the number of Echo-Boomers aged 25–44 is expected to eclipse the number of Baby-Boomers when they were those same ages by more than 5.9 million. The 76 million Echo Boomers will be in the market for their first homes over the next 10 years. While boosting the quantity of homes demanded, the Echo-Boomers will likely enter the housing market with lower real incomes than people the same age did a decade ago. Many Gen Y’ers feel less economically secure than their parents, even though they may be earning more than their parents did at their age, because their money doesn’t buy as much. This will affect their attitudes toward home buying and ownership. These younger home buyers are showing a preference for less living space located in more compact, denser developments located closer to entertainment and recreation opportunities. With the number of Gen Y households projected to increase by between 2.0 million and 3.4 million, the demand for starter homes should remain strong for the next 10 years. Next. household types and their impact on the trend to smaller-sized homes.
Communities nationwide are suffering from a lack of affordable housing, and housing production is not meeting the increasing demand for accessible and available units in many urban and rural areas, particularly areas of high opportunity.
Pathways to Removing Obstacles to Housing (PRO Housing) supports communities who are actively taking steps to remove barriers to affordable housing, such as:
Barriers caused by outdated zoning, land use policies, or regulations;
Inefficient procedures;
Gaps in available resources for development;
Deteriorating or inadequate infrastructure;
Lack of neighborhood amenities; or
Challenges to preserving existing housing stock such as increasing threats from natural hazards, redevelopment pressures, or expiration of affordability requirements.
HUD is issuing a Notice of Funding Opportunity (NOFO) under the authority of the Consolidated Appropriations Act, 2023 (Public Law 117-328, approved December 29, 2022) (Appropriations Act), which appropriates $85 million for competitive grant funding for the identification and removal of barriers to affordable housing production and preservation. Congress has directed HUD to undertake a competition using the Community Development Block Grant (CDBG) statutory and regulatory framework. HUD will be accepting applications for PRO Housing grants to identify and remove barriers to affordable housing production and preservation.
NOTE: Before submitting to HUD, applicants must publish their PRO Housing application or amendment in its entirety for public comment. The streamlined requirements mandate at least one public hearing for the application and for each substantial amendment and require providing a reasonable notice (at least 15 days) and opportunity for public comment and ongoing public access to information about the use of grant funds. For more information, please visit Section VI.E.5.a.iii of the NOFO.
Grantees may use awards to further develop, evaluate, and implement housing policy plans, improve housing strategies, and facilitate affordable housing production and preservation. Eligible applicants are local and state governments, metropolitan planning organizations (MPOs), and multijurisdictional entities.
The application deadline is October 30, 2023, at 11:59pm ET (8:59pm PT) on Grants.gov.
The full application package must be downloaded through www.grants.gov. The CFDA number is 14.023. Interested applicants may submit questions on the NOFO to the following email address: CDBG-PROHousing@HUD.gov.
FY 23 PRO Housing List of Priority Geographies (The Overview and Methodology tab and the updated NOFO FAQ provides clarification with jurisdictions that U.S. Census has listed as a place and a county.)
PRO Housing Mapping Tool and Demonstration Video (coming soon) – The mapping tool is designed to help PRO Housing applicants search for priority geographies. Under the Need rating factor, applicants will be awarded ten (10) points if their application primarily serves a priority geography.
Who is Eligible to Apply:
State Governments
County Governments
City or Township Governments
Metropolitan Planning Organizations
Multijurisdictional Entities
PRO Housing NOFO Webinars:
HUD is providing a series of webinars with a specific focus on the PRO Housing NOFO and application requirements. These one-hour webinars were designed for interested PRO Housing applicants. Latter webinars in the series address Frequently Asked Questions (FAQs) and inquiries received in the CDBG-PROHousing@hud.gov mailbox.
Live webinar dates and access links are provided by each webinar below. Follow the prompts to connect audio by computer or telephone. If you have issues, contact Webex Support: 888-793-6118. The recording will be posted here after the live webinar.
A: The Application due date will be listed in grants.gov. All applications should be submitted no later than 11:59pm Eastern Time (8:59pm Pacific Time) on the stated deadline.
Q: I’m an individual. Am I able to apply?
A: No. This announcement does not fund individuals. Eligible applicants include State governments, County governments, City governments or townships, multijurisdictional entities, and metropolitan planning organizations.
Q: Where do I submit my application?
A: The NOFO is published on Grants.gov and all applications must be submitted to grants.gov to be eligible for review.
Q: Where can I learn more about barriers to affordable housing that may be present in my community?
A: The Barriers to Affordable Housing webpage hosts resources where applicants learn more about barriers and take trainings associated with addressing barriers. There is also a link to the barriers clearinghouse tool to further assist applicants who wish to apply.
As I noted in my
previous blogs, during the Building Contractors Association of Southwestern
Idaho Political Action Committee interviews of candidates for public office,
the majority of the candidates cited the lack of affordable housing as one of
major the issues facing us. But we are
not alone. An August 2019 nationwide
survey conducted by Morning Consult(1) on behalf of the National
Association of Home Builders (NAHB) found that four out of five American
households believe the nation is suffering a housing affordability crisis and
at least 75 percent report this is a problem at the state and local level as
well.
The poll is also
consistent with the latest findings from NAHB’s Housing Trends Report for the
second quarter of 2019, which finds that 80 percent of buyers say they can
afford to purchase fewer than half of the homes available in their local
markets.
“Housing affordability
is near a 10-year low and this poll confirms the challenges hard-working
families face to keep housing within reach as rising costs continue to outpace
wage growth,” said Greg Ugalde, NAHB chairman and a home builder and developer
from Torrington, Conn. “Policymakers must roll back inefficient zoning rules,
costly impact fees and outmoded land development regulations that are driving
up housing costs, contributing to the mounting lack of affordable housing and
hurting middle and low-income households.”
More than half of the
respondents—52 percent—said they would support proposals to reduce regulations,
such as restrictive zoning and permitting procedures, that increase the costs
of constructing new homes.
The housing
affordability crises is an issue affecting both single-family and multi-family
housing. NAHB analysis shows that regulatory requirements alone account for 25
percent of the cost of a single-family home and 30 percent of the cost of a
multifamily development.
Multi-Family
Development
Let’s begin by
examining multi-family housing. The affordability of rental housing and how
difficult it has become to address the problem through new construction is an increasing
concern. In addition to rising labor and material costs, a 2017 report on
America’s Rental Housing published by the Joint Center for Housing Studies at
Harvard University cited “Tight land use regulations” as adding to costs ”by
limiting the land zoned for higher-density housing and entailing lengthy
approval processes.“
NAHB and the National
Multifamily Housing Council (NMHC) undertook a joint research effort to find
out how much government regulation adds to the cost of building new multifamily
housing. Results show that well over 90 percent of multifamily developers
typically incur hard costs of paying fees to local jurisdictions, both when
applying for zoning approval, and again when local jurisdictions authorize the
construction of buildings.
However, government
regulation can impose costs in other ways as well. Over 90 percent of
multifamily developers also incur costs of delays caused by sometimes lengthy
approval processes, development standards that go beyond what would ordinarily
be done, changes to building codes over the past decade, and OSHA requirements.
Other regulations, such as requiring developers to dedicate land to the
government, are somewhat less common, but can be quite costly when they are
encountered. The bottom line is that regulation imposed by all levels of
government – local, state or federal – accounts for an
average 32.1 percent of total multifamily development costs and quartiles averages
ranging from 21.7 to 42.6 percent.
A substantial amount
of regulation is well intentioned and some of it undoubtedly serves a
worthwhile purpose. Few would argue, for example, that basic safety standards
for structures and workers are unnecessary. But regulation that exceeds 30
percent of a project’s development costs raises questions about how thoroughly
governments are considering the consequences of their actions. Are they aware
of how much regulation currently exists? Do they realize how multiple
regulations with conflicting standards can cause delays and increase costs? And
do they understand the extent to which these increased costs translate into
higher rents and make it difficult to build new housing that families with
modest incomes can afford?
Regulatory costs fall
into several categories—fees, development standards, building codes, land
dedicated to public purposes, etc. The range of these regulations can be broad,
and the cost of complying with them substantial. Figure 1 shows the incidence
of different types of regulations imposed on multifamily developers, as well as
the average cost of complying with those regulations when they do exist.
The first significant
interaction between a multifamily developer and the government usually occurs
when the developer applies for zoning approval to allow multifamily housing to
be built on a particular parcel of land. Local governments pass zoning ordinances
that divide their territories into districts and specify how land in each
district can be used (single-family versus commercial versus multifamily, for
example). While it’s not impossible for a developer to acquire land that allows
multifamily structures to be built on it without going through a rezoning
process or obtaining some type of exemption to an existing ordinance, this is
the exception rather than the rule.
98 percent of projects
were subject to costs at the zoning approval stage. Regulatory costs incurred
at this stage can include fees paid directly to a government but may also
include other types of costs. Developers may have to pay for environmental
impact, archeological or other types of studies. When they exist, these
regulatory costs average 4.1 percent of the total development costs.
A developer may also need
to obtain a wetlands, stormwater and/or endangered species-critical habitat
permit. Many states manage the wetlands
permits under federal guidance, and states and local jurisdictions may have
their own sets of requirements, each of which is overseen by a different
federal government agency. It can be difficult to identify which level of
government is ultimately responsible for some regulation and trying to
reconcile conflicting requirements is one factor that can drive up the cost of
compliance.
It is also common for governments to charge utility hook-up,
impact fees, and other fees on a multifamily development when site work begins.
the authority of local governments to charge
impact fees on new development is established by state legislation. In Idaho,
that legislation is Chapter 82 Development Impact Fees of Title
67 State Government and State Affairs. As stated in the §67-8202, the purpose
of impact fee legislation is to develop “an equitable program for planning
and financing public facilities needed to serve new growth and development in
order to promote and accommodate orderly growth and development and to protect
the public health, safety and general welfare of the citizens of the state of
Idaho.” The intent of impact fees is
to “(1) Ensure that adequate public facilities are available to serve new growth
and development; (2) Promote orderly growth and development by establishing
uniform standards by which local governments may require that those who benefit
from new growth and development pay a proportionate share of the cost of new
public facilities needed to serve new growth and development;” and “ (4)
Ensure that those who benefit from new growth and development are required to
pay no more than their proportionate share of the cost of public facilities
needed to serve new growth and development and to prevent duplicate and ad hoc
development requirements.” Impact
fees may be charged for the construction of roads, water facilities, sewer
facilities, stormwater management, parks, fire, police, libraries, solid waste
management, and general government. A
particular development may be subject to fees from more than one government
entity. In Ada County, a development may be subject to impact fees the Ada
County Highway District and Ada County or the city in which the development is
located. 93 percent of multifamily developers in the NAHB-NMHC reported paying
fees when site work begins and, when they exist, these fees average 4.5 percent
of total development costs.
Some local governments
charge developers guarantee or other fees that are refundable when the project
is completed. Although these fees are also usually imposed when site work
begins, the survey treats them separately, due to the different cost
implications. If the fee is eventually refunded, the developer ultimately pays
only the interest that accrues on the development and construction loans until
that happens. Approximately 50 percent of typical multi-family projects were
subject to these fees which, when present, averaged half a percent of the total
development cost.
Local governments may
also require new development to conform to community design standards, including
standards for streets and sidewalks, parking, height of buildings, landscaping
and the architectural design of individual buildings. These standards can impose
little extra cost if they don’t significantly exceed the developer’s ordinary
practices. In the absence of regulation, for example, developers will still
ordinarily provide spaces for walking and parking, landscaping, and employ
architects who attempt to design buildings that are attractive to potential
tenants. Almost 95 percent of the typical projects of the developers surveyed
were subject to design standards that go beyond what the developer would
otherwise do. When these beyond-ordinary requirements were present, they
accounted for an average of 6.3 percent of the overall development cost.
Half of the typical
projects required developers to dedicate land to the government or otherwise
leave it unbuilt. This requirement can take many forms, such as creating a park
on the property or reserving part of the property for the government to use in
some way. In these cases, the developer must pay for the land but is not
allowed to derive revenue from it, driving up the cost per unit for the housing
that can be built. For those projects subject to this regulation, it
represented an average of 4.3 percent of total development cost.
93 percent of
multi-family developers reported paying some sort of fee when construction in
their typical project was authorized. This could be limited to a building
permit fee, but additional impact, hook-up or other fees may also be charged at
this point. When they exist, the fees charged at this point average 4.2 percent
of development costs, large enough to suggest that they often encompass more
than the building permit fees.
Local jurisdictions
are increasingly beginning to consider imposing affordability mandates to
attempt to create new affordable housing. These mandates without any offsetting
incentive like a tax exception typically create few units and effectively tax
some housing units and ultimately their occupants to subsidize others. In some cases,
developers are allowed to pay a fee to avoid the requirement, but that amount
gets added to the overall amount the developer must pay, thus raising the rents
required. If they are not allowed to pay a fee, the regulation may require them
to lose money on some of the housing they build, which is effectively a tax,
resulting in higher rents on non-subsidized apartments. 30 percent of
developers indicated that their typical projects incurred costs related to
complying with such mandates. These costs, when they exist, averaged 5.7
percent of total development costs, enough to result in substantially higher
rents.
Virtually no one would
argue against public standards for basic soundness and safety of residential
structures, but over the decades building codes have expanded well beyond this
and are increasingly being used as a vehicle to advance various policy
objectives. A leading example is energy efficiency. There is now a model
International Energy Conservation Code® (IECC).
Energy efficiency is a
worthwhile objective, but NAHB and NMHC have argued that the up-front cost
needs to be kept within reasonable bounds. NAHB and NMHC have supported some
recent changes to the International Energy Conservation Code (IECC) but opposed
others as not cost-effective. Manufacturers of building products advocate for
code changes that mandate more use of their products and tend to be less
concerned than NMHC and NAHB about costs. Past analysis by NMHC on previous
code cycles has shown that changes to the IECC have the potential to drive up
construction costs by over $3,000 per apartment (depending on type of building
and climate zone) and argued that subsequent savings on utility bills come
nowhere near justifying the cost.
This is another area where
the federal government has become increasingly involved. The Environmental
Protection Agency, the Federal Emergency Management Agency, and the Department
of Energy (DOE), all actively participate in the development of national model
codes, proposing changes to national model codes and testifying in favor of
them during code hearings. DOE also has a share of its budget set aside for
persuading state and local jurisdictions to adopt more stringent codes.
Representatives from NAHB who witnessed all of the recent code hearings have
criticized federal agencies for supporting certain code changes that removed
flexibility and limited builders’ options, driving up costs without improving
energy efficiency, to the benefit of specific product manufacturers.
98 percent of
developers said changes in building codes over the past 10 years increased
development costs in their typical projects by an average 7.2 percent of total
development costs.
Nine out of ten
developers said complying with requirements of the Occupational Safety and
Health Administration (OSHA) increased costs in their typical projects, and
these costs, when present, average 2.3 percent of total development costs.
Again, few would argue that safety standards for construction workers are
unnecessary. In recent years, however, OSHA has issued a substantial number of
regulations imposing costly compliance requirements all without providing any
evidence that they would actually improve safety in the residential
construction industry.
Even when regulation
imposes no direct costs, it can have a financial impact if it delays the
development and construction process. If it takes longer to begin leasing and
earning income on a property, it will take longer to pay off any development
and construction loans and more interest will accrue.
Some regulatory delay
is inevitable, as it will naturally take some time for local building
departments to review and approve plans and respond to requests for
inspections. Precisely how long it is reasonable for a developer to wait for
approvals and inspections is open to debate, but there are examples that
clearly seem excessive. One academic study, for example, found that it took an
average of 788 days to prepare a submission and receive approval for an
individual federal wetlands permit.
98 percent of
developers said complying with regulations caused some sort of delay for their
typical projects. For these projects, NMHC and NAHB estimated that average
additional interest was 0.7 percent of total development costs. This is a
“pure” cost of delay that regulation would cause even if it imposed no other
type of cost. It is calculated by subtracting every other type of regulatory
cost, then estimating the additional interest accruing on the share of the
remaining development cost that is typically financed.
Figure 2 shows that,
when both the incidence and magnitude of the various types of regulation into
account, the listed categories taken together on average account for 32.1
percent of development costs for a multifamily project.
Among the listed
categories, average cost is highest for changes to building codes over the past
10 years (7.0 percent of total development costs), followed by development
standards imposed by government that go beyond what the developer would ordinarily
do (5.9 percent of total development costs).
To illustrate the
variability in regulatory costs, in addition to averages, Figure 2 shows the
upper and lower quartiles (costs are below the lower quartile for 25 percent of
respondents, and above the upper quartile for 25 percent). While on average
regulation accounts for 32.1 percent of total multifamily development costs,
the quartiles give a range of 21.7 to 42.6 percent.
Although the NAHB-NMHC
survey sought to be as comprehensive as possible, it did not capture
everything. The cost of delays as well as other costs
incurred due to neighborhood opposition to the development are such costs. At
the local level, governments may encourage or facilitate local groups who
oppose multifamily development. One way to do this is by allowing local groups
to sue any developer who proposes to build multifamily housing, but there are
many more subtle ways to encourage opposition. A developer may have to devote
time and financial resources to deal with this opposition, by meeting with
local groups before seeking zoning approval, for instance. To quiet the
opposition, developers may find it necessary to make concessions to local
groups, such as reducing size of the buildings so that land costs are allocated
to fewer apartments and cost per apartment is increased. In an extreme case,
local opposition may cause a local government to reverse its decision to approve
a project after the developer has already invested heavily in it. In many of
these cases, there is an obvious cost to neighborhood opposition, but how much
responsibility the local government bears for it may not always be clear.
Figure 3 below shows that 85 percent of developers experienced added costs or
delays due to such opposition.
As the above
discussion has demonstrated, multifamily development can be subject to a
bewildering array of regulatory costs, including a broad range of fees,
standards, and other requirements imposed at different stages of the
development and construction process. In view of this, it may not be surprising
that regulation imposed by all levels of government accounts for 32.1 percent
of multifamily development costs on average, and one-fourth of the time reaches
as high as 42.6 percent.
The current estimate
that government regulation accounts for 32.1 percent of total development costs
is almost certainly understated to some extent, as it was not possible to
account for items like the extent to which local jurisdictions may empower
their citizens to oppose multifamily housing in their communities. Average
costs could be even higher now or in the near future due to regulations taking
effect since the multifamily projects in the survey were completed. For
example, OSHA’s Silica Rule went into effect in late 2017, a regulation that
industry groups have criticized as unreasonably onerous and unnecessarily
costly. Similarly, local jurisdictions are just beginning to adopt the 2018 versions
of the model international building codes. Home Innovation Research Labs has
recently estimated that the difference between the 2018 and 2015 versions of
the codes can add thousands of dollars onto the cost of a multifamily building.
As is typically the case, federal agencies supported several of the
cost-increasing changes to the codes.
When the cost of
multifamily development rises, it unavoidably translates to higher rents and
reduced affordability of rental housing. Multifamily developers can not secure
financing to build their projects unless they can demonstrate to lenders that
the rents will be sufficient to cover costs and pay off the loans.
Single-Family Homes
NAHB estimates based
on the latest data show that, on average, regulations imposed by government at
all levels account for an average of 24.3 percent of the final price of
a new single-family home built for sale quartiles averages ranging from 21.7 to
42.6 percent.
Three-fifths of this—14.6
percent of the final house price—is due to a higher price for a finished
lot resulting from regulations imposed during the lot’s development. The other
two-fifths—9.7 percent of the house price—is the result of costs
incurred by the builder after purchasing the finished lot. Moreover, the
average cost of regulation embodied in a new home is rising more than twice as
fast as the average American’s ability to pay for it. It’s also likely the costs embodied in a new home are understated
because some types of regulation impact costs in a way that is difficult for builders
to see, and the pace of regulatory cost increases is accelerating due to the number
of regulations in the pipeline.
Many of the regulatory
requirements that account for the 32.1 percent of the cost of a multifamily
development also account for the 25 percent of the cost of a single-family home.
As noted in Part 1a, the cost of the average single-family lot as a percentage
of the sales price was 20.3% on 2009 and 21.5% in 2017. But the average lot
size in 2009 was approximately 21,879 square feet – approximately ½ acre – and
the average cost per square foot of a finished lot was $3.50. In 2017, the average lot size was
approximately 11,186 square feet – approximately ¼ acre and the average cost
per square foot of a finished lot was approximately $8.22 – an increase of
approximately 235%.
As shown in Table 1, the
regulatory impacts on the price of a developed lot that would typically be sold
to a builder account on average for 54.7 percent of the price of the lot
and range from a lower quartile average of 29.8 percent to an upper quartile
average of 70.7 percent. Among the five components of regulatory costs shown in
the table, the average impacts range from 5.1 percent of the lot’s price
for “pure” cost of delay to over 16 percent for changes in development
standards such as setbacks or road widths.
Based on the
assumption that the finished lot cost accounts for 21.8 percent of the final
price of the home and that the builder’s mark-up on cost to cover sales
commissions, overhead, and profit is 22.3 percent, those same regulatory
impacts account on average for 14.6 percent of the final price of the
home sold to the home buyer and range from a lower quartile average of 7.9% to
an upper quartile average of 18.8%.
Regulatory
requirements on single-family lots are similar to those on multi-family
development and include the cost of applying for
zoning / subdivision approval, costs incurred after approval / before
construction, land dedicated to the government or otherwise left unbuilt,
changes in development standards, and “pure” cost of delay.
The pure cost of delay
in the table refers to the estimated cost that the delays of waiting for
approval and complying with development regulations would impose in the absence
of any other type of regulatory cost. Delay also factors into other regulatory
costs listed in the table through higher interest payments on acquisition and
development loans that accrue over a longer period of time. On average,
complying with regulation adds 6.6 months to the development process, but the
variation is considerable, ranging from no time at all to over 5 years.
Just as with
multi-family developments, local governments charge impact fees, and other fees on single-family homes. As noted previously, the authority of local
governments to charge impact fees on new development is established by state
legislation. In Idaho, that legislation is Chapter 82 Development Impact Fees
of Title 67 State Government and State Affairs. As stated in the §67-8202, the
purpose of impact fee legislation is to develop “an equitable program for
planning and financing public facilities needed to serve new growth and
development in order to promote and accommodate orderly growth and development
and to protect the public health, safety and general welfare of the citizens of
the state of Idaho.” The intent of
impact fees is to “(1) Ensure that adequate public facilities are available to
serve new growth and development; (2) Promote orderly growth and development by
establishing uniform standards by which local governments may require that
those who benefit from new growth and development pay a proportionate share of
the cost of new public facilities needed to serve new growth and development;”
and “ (4) Ensure that those who benefit from new growth and development are
required to pay no more than their proportionate share of the cost of public
facilities needed to serve new growth and development and to prevent duplicate
and ad hoc development requirements.” In other words, to ensure that growth and
development pay for themselves.
As with multi-family
development, additional costs including the cost of delays incurred due to
neighborhood opposition to growth and development may also apply to
single-family lot development.
The neighborhood
opposition is often based on the mistaken belief that growth does NOT pay for
itself. But on the contrary, the actual numbers prove that growth does if fact
pay for itself and more. In 2018, single-family residential construction in Ada
County generated a total of $77,297,500 in revenue to local governments
including $61,290,00 in permit and impact Fees and $16,007,500 in property
taxes and other fees. In addition, that single-family residential construction
generated $893,637,000 in local income, $303,294,100 in business owners’
income, $590,342,900 in local wages and salaries, $16,007,500 in local taxes,
and supported 12,894 local jobs. Finally, over the next 15 years, the
single-family homes built in 2018 and the households which occupy them are
estimated to generate $319.5 million in revenue over their cost.
As shown in Table 2, the impacts of regulation imposed during construction,
after a builder has acquired the lot on average accounts for 14.5
percent of construction costs. Of this, 5.3 percent is the actual
hard cost of fees paid by the builder. The remaining 9.2 percent is the
cost of changes to construction codes and standards over the past 10 years. The
9.2 percent increase since does not mean all subsequent code changes have been
unnecessary, but it does raise a question about how well possible cost impacts
are being factored into the code revision process.
Similar to Table 1, based on the assumption that costs
incurred during construction account for 56.0 percent of the house price, and
that the builder’s mark-up on cost to cover sales commissions, overhead, and
profit is 19.2 percent, the impacts of regulation imposed during construction,
after a builder has acquired the lot, on average account for 9.7 percent
of the home’s final sale price and range from a lower quartile average of 4.0
percent to an upper quartile average of 12.7 percent.
Adding together costs imposed by government at all levels
account during both single-family home development and construction accounts on
average for 24.3 percent of the final price of a new single-family home
built for sale and range from a lower quartile average of 14.0 percent to an
upper quartile average of 30.3 percent.
Finally,
as noted previously, the average cost of regulation embodied in a new home is
rising more than twice as fast as the average American’s ability to pay for it.
Previous NAHB estimates of regulatory costs conducted in 2011 estimated the
share of a new home’s price attributable to regulatory costs at 25 percent
compared to the most recent 24.3 percent.
However, according to the U.S. Census Bureau, the average sales price of
a new home has increased from $260,800 in 2011 to $362,700 in September 2017.
Applying
the average percentages from NAHB’s studies to these home prices produces and
estimate that average regulatory costs in a new home built for sale has increased
35.1 percent from $65,224 to $88,136 in the roughly eight-and-a-half-year
period from April 2011 to September 2019. The impact of regulation imposed
during lot development increased by 24 percent, from $42,709 to $52,954, and the
impact of costs imposed during construction increased the by 56.1 percent, from
$22,535 to $35,182.
As
also noted previously, it is likely the costs embodied in a new home are
understated because some types of regulation impact costs in a way that is
difficult for builders to see, and the pace of regulatory cost increases is
accelerating due to the number of regulations in the pipeline.
The 35.1 percent average increase in the
average overall regulatory costs embodied in the price of a single-family home
built for sale period from April 2011 to September 2019 is higher than the 32
percent increase in disposable income per capita during that same period which
in turn is higher than the 26.6 percent increase in the cost of construction materials.
The bottom line is the cost of regulation in the price of a new home is rising
faster than the average American’s ability to pay for it.
In The Challenge of Affordable Housing Part 3, I’ll begin discussing possible solutions to the challenge.This national survey of 19,801 adults was conducted Aug. 9-24, 2019 by the polling firm Morning Consult. It has a margin of error of ± 1 percent.
This national survey of 19,801 adults was conducted Aug. 9-24, 2019 by the polling firm Morning Consult. It has a margin of error of ± 1 percent.
As
I noted in my last blog, during the Building Contractors Association of
Southwestern Idaho Political Action Committee interviews of candidates for public
office, the majority of the candidates cited the lack of affordable housing as
one of major the issues facing us. During the discussions, a number of the
candidates said they understood that it is a supply and demand issue.
The
more I thought about it, the more I felt the need to dispel some possible
misconceptions regarding the supply and demand issue. A commonly held misconception regarding supply
and demand and its impact on pricing is that providers increase prices when demand
exceeds supply and decrease prices when supply exceeds demand. While this might be true in some industries,
it isn’t true in homebuilding. Builders use the same mark-up percentage on their
direct cost (the sticks and bricks) regardless of demand to calculate the sales
price. Builders typically use a 15% to 20% markup. Markup is also referred as the
expected or planned Gross Profit Margin.
The markup covers the Builders operating expenses which include
financing expenses, sales and marketing expenses, general and administrative
expenses (overhead), and the owner’s compensation, and the Builder’s Net Profit
Before Taxes. It also covers Slippage – the variance between the Builder’s expected
or planned gross profit margin and what is actually attained for a given period
or particular job. Slippage can result
from a number of factors including but not limited to unanticipated increases
in material and labor costs, delays due to lack of skilled trades or inclement
weather, or other factors beyond the Builder’s control. It can also result from increases in financing
expenses due to unanticipated delays in selling the home.
The
National Association of Home Builders (NAHB) has been conducting a biennial survey
of its builder members and compiling the findings into a publication titled The
Cost of Doing Business Study since 1970.
As shown in the table below excerpted from the latest study, during that
time, the average Gross Profit for Builders has ranged from 14.4% in 2008 to
23.9% in 1978 with the average being 19.29%. The average Net Profit Before
Taxes for Builders has ranged from minus 3.0% in 2008 to 10.0% in 1991 with the
average being 5.1%. In 2017, the most recent year for which numbers are
available, The
Cost of Doing Business Study, 2019 Edition, the average Net Profit Before Taxes
was 7.6%.
While
it is not a factor in how Builders determine their markup, supply and demand is
a factor in the direct cost of the home. The biggest impact of supply and demand
has been in the finished lot cost. Over the years, NAHB has periodically conducted
“construction cost surveys” to collect information from builders on the cost of
the various components that go into the sales price of a typical single-family
home.
As
shown in the tables below, the cost of the lot as a percentage of the sales
price was 20.3% on 2009 and 21.5% in 2017. But those percentages don’t tell the
whole story. In 2009, the average lot size was approximately 21,879 square feet
– approximately ½ acre. In 2017, the
average lot size was approximately 11,186 square feet – approximately ¼ acre.
The average cost per square foot of a finished lot in 2009 was $3.50. The average cost per square foot of a
finished lot in 2017 was approximately $8.22 – an increase of approximately 235%.
While supply and demand is a factor, it is not the only factor impacting the cost of the lot as we will discuss in The Challenge of Affordable Housing Part 2 – The Cost of Regulation
Last
week I spent several days interviewing candidates for public office as a member
of the Building Contractors Association of Southwestern Idaho Political Action
Committee. A majority of the candidates cited the lack of affordable housing as
one of major the issues facing us.
It
is not a simple issue of supply versus demand.
Affordable housing is a multi-dimensional problem. Some of the reasons
are beyond our control such as increasing material costs due to tariffs imposed
by the federal government or the changing demographics.
However,
many of the reasons for the problem ARE within our control or, more
accurately, the control of our local elected and appointment government
officials. Those reasons include:
Increasing fees
that add to housing costs
Outdated
ordinances that limit the range and mix of housing types
Unwieldy,
lengthy development review and approval processes
Environmental/growth
controls that constrain land supply and developability
Citizen
involvement in nearly every phase of the process adds NIMBY delay and
uncertainty
We
need to recognize the fact that households encompass an increasingly diverse
demographic that has changed over time.
Forty-eight percent of adults are single. There are more extended
families in multi-generational households. Forty-one percent of young adults
live with their parents. Our aging population is living in homes that aren’t
very accessible. And we are experiencing a greater divergence in household
incomes.
So,
let’s start by defining the problem in terms of household incomes.
Generally
speaking, affordable housing in the United States is defined as a percentage of
household income with the consensus being that that housing expenses shouldn’t be more than 30% of what you
earn, leaving 70% of your income for food, clothing, transportation and other
necessities. If you spend more than 30% of your income on housing expenses, you
are considered “overburdened”.
According
to the U.S. Census Bureau, the Median
Income in 2017 dollars in Ada County is $60,151 for Households, $87,423 for
Married Family Households, $33,494 for Non-Family Households. There are 164,389 Total Households, 84,065
Married Family Households, and 59,435 Non-Family Households. Of the Total
Households, 68.3% are homeowners and 31.7% are renters. For Married Family
Households, 82.8% are homeowners and 17.2% are renters. For Non-Family Households, 53.4% are
homeowners and 46.6% are renters. But with regard to homeowners, we need to keep in mind that the median home price has almost
doubled in the last 10 years and I believe it’s safe to assume that the
majority of homeowners purchased their homes for much less than the current
median home price.
According
to the Boise Regional Realtors, the Median Sales Price for homes in Ada County
is currently $355,000. A 20% down payment would be $71,000 and the
mortgage would be $284,000. At current interest rates for a 30-year fixed rate
mortgage, the monthly payment including property taxes and insurance would be
approximately $1,850 or 36.9% of the median household income, 25.4% of the
median household income for married families, and 66.3% of the median household income for
Non-Families.
A
3.5% down payment for an FHA loan would be $12,425 and the mortgage amount
would be $342,575. At current interest rates for a 30-year fixed rate mortgage,
the monthly payment including property taxes, insurance, and private mortgage
insurance would be approximately $2,276 or 45.4% of the median household income,
31.2% of the median household income for married family households, or 81.5% of the median household income for
Non-Family households.
We
also need to keep in mind that the median is the middle point and that half the
numbers are above the median and half are below. For Total Households,
approximately 49% have incomes less than the median. For Non-Family Households, the percentage is
74.4%.
But
household incomes are not something we can control, so we will focus on those
reasons we can.
Next
topic: Increasing fees that add to
housing costs
The National Association of Home Builders (NAHB) recently released their 2015 Construction Cost Survey conducted in August of 2015). NAHB’s 2015 construction cost survey was conducted by emailing a questionnaire to a representative sample of 4,090 home builders. The sample was stratified by size of the builder (based on number of starts) and region of the country (the sample being proportional to housing starts in each of the four principal Census regions).
The construction cost survey shows that, on average, 61.8 percent of the sales price goes to construction costs and 18.2 percent to the finished lot costs. On average Builder profit (including owners’ salary and return on capital) accounts for 9.0 percent of the sales prices.
Nationally, the average new home size was 2,802 square feet and the average sales price was $468,318. The average price per square foot was $167.14.
The NAHB Construction Cost Survey provides some additional insights into the cost of construction. The average lot was 20,129 square feet or .46 acres and cost $85,139. The average Total Construction Cost, excluding Lot Cost, Financing Cost, Sales Commissions, Marketing Cost, Builder Overhead and General Expenses, and Profit, was $289,415 or $103.29 per square foot.
How does Ada County compare with these national numbers. The Intermountain MLS Data for New Construction in Ada County reports that as of 11/04/2015, there have been a total of 1,656 new homes sold this year. The average new home size was 2,325 square feet and the average sale price was $323,059. The price per square foot ranged from $111.80 to $236.67 with the average price per square foot was $138.95.
Two articles caught my attention today. The first was a blog post by National Association of Home Builders economist Robert Dietz titled “Single Family Home Size: Flat Trends”. Mr. Dietz reported that according to third quarter 2015 data from the Census Quarterly Starts and Completions by Purpose and Design and NAHB analysis, median single-family square floor area fell from 2,478 in the second quarter to 2,445 square feet. Average (mean) square footage for new single-family homes fell from 2,704 to 2,653 for the third quarter. Since cycle lows in 2009-2010 and on a one-year moving average basis, the average size of new single-family homes has increased 13% to 2,693 square feet, while the median size has increased 17% to 2,472 square feet.
The second article arrived in an e-newsletter from Builder magazine. That article was titled “FOUR PLANS: TINY HOMES FOR REAL LIFE” and featured four plans ranging from about 700 to just under 1,000 square feet. Two of the plans include two-car garages.
While the larger homes obviously reflect current market trends, I couldn’t help but wonder if there is actually a market for the “tiny” homes. The article suggested they are suitable for a wider range of situations that might include a young childfree couple wanting a simple bungalow, a small family wanting an affordable first home, or a multi-generational family building an in-law cottage to go behind a larger family home.
I’d like to know what you think. Would you buy a “tiny” home?
Homeownership is the Foundation of the American Dream.
• For many people, owning a home is part of their American Dream. Homeownership builds stronger communities, provides a solid foundation for family and personal achievement and improves the quality of life for millions of people. It is truly the cornerstone of the American way of life.
• Most Americans consider homeownership to be the single best long-term investment and a primary source of wealth and financial security. Countless generations of Americans have counted on their homes for their children’s education, their own retirement and a personal sense of well-being.
• Yet, a home is so much more than an investment. In good times and in bad, the opportunity to own a home has been a cherished ideal and a source of pride, accomplishment, social stability and peace of mind.
• Changing housing policy now to make owning a home more expensive is unfair and would hurt those that have played by the rules and made the sacrifices to get where they are now.
• It would harm millions of Americans who are struggling to make their monthly mortgage payments and those who aspire to one day own a home of their own.
Homeownership is a Major Driver of the U.S. Economy
• The nation’s housing and homeownership policies over the last century have contributed to the growth of the middle class and helped the United States become the most dynamic economy the world has ever seen.
• Fully 15 percent of the U.S. economy relies on housing and nothing packs a bigger local economic impact than home building.
• Constructing 100 new single-family homes creates 297 full-time jobs, $28 million in wage and business income and $11.1 million in federal, state and local tax revenue.
• A healthy housing industry means more jobs and a stronger economy. Home building increases the property tax base that supports local schools and communities.
• Housing, like no other sector, is “Made in America.” Most of the products used in home construction and remodeling are manufactured here in the United States.
The National Association of Home Builders (NAHB)
The National Association of Home Builders (NAHB) helps its members build communities. Each year, NAHB’s members construct about 80% of the new homes built in the United States, both single-family and multifamily.
Since it was founded in the early 1940s, NAHB has served as the voice of America’s housing industry. We work to ensure that housing is a national priority and that all Americans have access to safe, decent and affordable housing, whether they choose to buy a home or rent.
Achieving that goal is increasingly difficult in today’s contentious and unsettled political and financial environment, one in which the concept of homeownership as a national priority is very much under attack. NAHB champions laws and regulations designed to reverse this dangerous course that will drive down the value of the nation’s housing stock, drive up the cost of rental housing, and threaten the economic recovery.
For more information on NAHB, ask me or visit nahb.org
And when you are ready to design and build your American Dream Home, contact us.
According to recently released data from HUD and the U.S. Census Bureau, sales of newly built, single-family homes rose 2.2 percent to a seasonally adjusted annual rate of 546,000 units in May. This is the highest new-home sales rate since February 2008. The National Association of Realtors reported that the sale of previously owned homes also surged in May, rising to a seasonally adjusted rate of 5.35 million, buoyed in part by the return of younger buyers who had long struggled to find a path into the market.
As the housing market returns to normal, we are seeing more and more articles on the pros and cons of buying a new home vs. an existing home.
According to recent survey by Trulia, twice as many people prefer new homes to existing homes. A “new” home is a home that has never been lived in before, or a home purchased in the pre-construction phase. An “existing” or resale home is a home that was pre-owned. Most existing homes were built between the 1920s and the 1970s. For the same price, 2 in 5 Americans – a sizeable 41% of the population – either somewhat or strongly prefer a newly-built home over an existing one.
Among the myriad of decisions to make when buying a home is should you purchase a new home or one that has been previously lived in. Ultimately you have to decide which is best for you and your family. There are advantages and disadvantages to both. Here are a few things to help you make an informed decision.
New homes can cost more. According to Trulia, a new home costs 20% more than a resale home.
When buying a new home, you are able to work with the builder to customize your home before construction is completed. Depending on the Builder, you might be able to design your new home from scratch. At a minimum, you can pick out the carpet, countertops, flooring and paint colors. You might even get to pick out things like sinks, shower heads and door handles.
With a new home, most of the work is done for you. You don’t have to lift a finger, a paint brush, or a hammer. You won’t have to do much maintenance. With brand new appliances, plumbing, heating, and air, you should be repair free for at least a few years – a big financial benefit vs. an existing home.
If you are someone who takes pleasure in fixing up a home, customizing and upgrading it yourself, or tailoring it to your preferences, an existing home might be for you.
New homes come with some of the design elements that today’s lifestyle demands: open floor plans, eat-in kitchens, large master baths, and walk-in closets to name a few.
A new home will likely be more energy efficient built using high-efficiency furnaces, air conditioners, and water heaters, added insulation, energy efficient windows, along with ENERGY STAR appliances that could reduce utility bills by thousands of dollars over the course of home ownership.
A new home might not include certain appliances like the refrigerator, washer and dryer.
An existing home might include appliances which are typically not included in new homes and might also include window coverings and some furniture, etc. which are usually sold for much less since they are used and a burden for the seller to move.
A new home will most likely have the option to include modern technology that many savvy homeowners want like Wi-Fi, USB plug-ins, surround sound, smart gadget capabilities and more saving you lots of time, money, and holes in the walls.
If you want to make a change to energy efficient appliances or more “smart” technology in an existing home, you could end up spending a lot of money. An existing home was most likely built when the technology for wireless internet and smart security systems wasn’t even a thought in the builder’s mind. Upgrading to modern technology in an existing home can be expensive and can mean more holes in walls and more remodeling.
Besides the fact the home has never been lived in, a new home is clean and worry-free.
A previously owned home can be hiding huge money traps. The home may look fine, but it could be hiding major issues beneath the surface, such as mold or water damage. The home’s systems and appliances have been used. The water heater has produced thousands of gallons of hot water, appliances have been used hundreds or thousands of times, and the HVAC system has already weathered a number of winters and summers. Systems and appliances that have already been used have a shorter lifespan, and may fail earlier than brand new appliances. Previous wear and tear can be hard your wallet.
There are also lifestyle factors to consider. After all, you’re not just buying a house – you’re buying a home and a neighborhood.
A new home is generally in a neighborhood of new construction, as opposed to existing homes. New homes are created in brand new subdivisions that are having houses built all at the same time. Although some individuals may think this is a plus, it also means that you could be stuck in a construction zone for a few months or years after purchasing your new home. Some necessities might not yet have been built close to new subdivisions, which could mean you might have to drive farther to schools, grocery stores and work. If you’re looking for a lovely, quaint, tree-lined older neighborhood that has a well-established community of neighbors, you won’t get it for many years in a new development.
A previously owned home will be in an established neighborhood close to necessities and with a neighborhood culture. A home in a neighborhood that has been established can be a huge boost to property values and buyer morale.
New homes are typically built on smaller lots than most older homes. If you’re looking for that big backyard – and lots of space between your house and the next door neighbor’s, you may not find it in a new home.
Take your time and weigh the pros and cons of buying a new versus pre-owned home. At the end of the day, new or pre-owned, your home should make you feel comfortable for years to follow.
Chuck Miller Construction Inc. believes that homes should be a safe and sacred haven. They should reflect our clients’ values and lifestyle while providing a sense of community. They should be comfortable and long lasting, be designed and built so that you can live there independently regardless of your age or physical ability, and should use energy and resources efficiently and responsibly. So whether you decide to purchase a new home or a previously owned home, we have the knowledge, experience, and team of qualified trade contractors and suppliers to turn your dreams into reality.