NAHB Economics estimates that 14 million American households are priced out of the market for a new home by government regulations that, on average, increase the new home price by 24.3%. Households become “priced out” when they no longer qualify for a new home mortgage because of higher prices.
A recent NAHB study estimated that, on average, regulations imposed by government at all levels account for 24.3% of the final new home price. For a typical new single-family home built for sale, this translates into additional $84,561.
The NAHB Priced Out Model uses the most recent US household income distribution and estimates that 48.4 million US households can qualify for a new home mortgage in the absence of government regulation. However, after the regulatory costs are added to the price, only 34.4 million households remain able to qualify for a mortgage. The difference is 14 million US households priced out of the new home market by price escalations due to government regulations.
The assumptions NAHB Economics typically uses in “priced-out” computations are a down payment equal to 10 percent of the purchase price and a 30-year fixed rate mortgage. For a loan with this down payment, lenders would typically require mortgage insurance, so NAHB also assumes an annual premium of 45 basis points for private mortgage insurance. Information about property taxes and property insurance per dollar of home value comes from the 2014 American Community Survey (ACS).
The current version of the NAHB Priced Out Model uses the most recent US household income distribution based on the 2014 ACS data. NAHB Economics makes relatively minor adjustments to the ACS income distribution to account for income and population changes that may have occurred since 2014.
Even though the NAHB Priced Out Model does not estimate effects of new regulation on new home sales or housing starts, it highlights often overlooked effects of regulation on affordability of new homes.