NAHB Economics recently released its 2014 Priced Out Estimates showing that, nationally, a $1,000 increase in the median new home price (triggered, for example, by additional regulation) prices 206,269 households out of the market for the home. This means that 206,269 U.S. households could qualify for a mortgage on the median-priced new home before, but not after, the price increase.
The NAHB release includes priced out results for individual states and metro areas that range widely depending on local market conditions. In populous metro areas with relatively affordable new homes, hundreds and sometimes thousands of households can be priced out by a $1000 increase. In Houston-Sugar Land-Baytown, TX and Atlanta-Sandy Springs-Marietta, GA, large metro areas where almost half of all households can afford the median-priced new home, a $1,000 can price out over 4,000 households.
Among the states, Texas registers the highest priced out effect, where more than 18,000 households can be pushed out of the market for a median-priced new home if its price increases by $1,000.
NAHB Economics revises the priced out estimates periodically to reflect changing economic conditions, including new home prices, mortgage rates, household income distribution. For detailed methodology and data description, see our research paper at Housing Economics Online. The paper also provides access to the complete list of priced out estimates for individual states and metros.
It also explains how every time a local or regional government raises construction costs by, for example, increasing building permit or impact fees, the final price of the home to the buyers usually goes up by more than the increase in the government fee. This is because other costs such as commissions and financing charges automatically rise as well. As shown in Table 3 of the paper, these add-on charges range from 0 percent if a fee is imposed directly on buyers to 39 percent if cost is incurred when applying for site development approval. So that for every $1 increase in fees incurred, for example, when acquiring a building permit, the final price of a new home to its final customer rises by $1.20.