14 Million Households “Priced Out” by Government Regulation


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.

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5 replies

  1. What regulation exactly is supposedly responsible for a 25% added cost to construction or purchase? No real estate agent, appraiser, home builder, or lender I have talked to knows anything about these regulations.

    Requiring a down payment isn’t a government regulation. In the case of requiring 20% down on a conventional loan going to the secondary market, Fannie Mae is a government sponsored enterprise publically traded on the NYSE. It is a publically held company, with shareholder dividends etc. If a loan isn’t going to the secondary market, where the tax payers don’t have to back it up if it fails, the private lender can set whatever terms they want or just give you the property and the feds could care less. They only care when it’s backed by tax payer dollars.

    Nebraska has one of the highest property tax rates in the US, the 5th highest. I used to appraise there. Their property tax rate is generally around 1% state, and 1% local based on 100% of market value assessment rate. So the total tax rate is approximately 2% of value per year.

    Insuring your property, either the property itself or the mortgage, is not government regulation. If you own the property and have no mortgage lien on it, then there is no lender either primary or secondary worrying about covering a potential loss. If the loan stays in house, mortgage insurance is also not required, it’s up to the bank if they want to risk the default.

    The numbers just seem really padded to make a sensational story, while in the second half of the article, the factors listed are either not legit or overstated.

    • Exactly what regulation is responsible for the 24.3 percent increase in the price of a new home was covered in the previous post and study (the hyperlinks in the first two paragraphs).

      If you read those, you’ll see that the regulation described deals with costs incurred by builders and developers and has nothing to do with downpayment or other mortgage characteristics.

      This post illustrates how those previously described regulatory costs translate to higher ongoing costs for a home buyer using a typical mortgage to purchase the home.

    • Matthew, seriously? Consider the costs of and EIR, or conforming to new regs for Stormwater. Or even the legal delays when to deal with a rogue organization like the California Coastal Commision. It is endless. Based on your comment I would say you have never been directly involved with property development. Or you would know exactly what this article is describing.

      These direct costs and the time delays; which affect time to market, and the cost of money (if leveraged) all get added to the market price of the product.

      • What is the “pricing out by profit” percentage in the new housing market? Developers’ and Contractors’ can influence this factor. Hence it should be subjected to the same acid test as government regulation.

        Most regulations and standards are put in place to increase the efficiency of commerce by having reliable services, products and fitness for use. Working in municipalities, I have witnessed developers’ plans and construct drainage channels with no grade, school sites several feet above and below grade level specs. I think your model is missing the basics. As a Citizen, I am not sure I am getting value for money from private or pubic sectors in meeting housing needs.

        In simplest terms, every living entity requires a home? Sufficient shelter from the elements to stay alive. At present, discarded cardboard boxes or tarps under highway/or rail overpasses or underutilized land and possibly communal burning barrels on undeveloped land would appear to be the de facto minimum standard across most of North America. Regulator costs may include intermittent destruction and removal of building materials with little or probability of cost recovery from occupants of these shelters. Local, regional, or state governments often pay for this expense.

        A new standard is coming into force. Due to our collective actions, this standard will affect both private and public housing practices. I live in a flood-prone city. For example, the new standard emerging is the land above the 700-year flood level. Will the walls and roof remain standing in extreme weather events experienced last year? I would suggest this discussion about the cost of regulation sounds like a debate on the pricing of tickets for the Titanic!

  2. More than 25% households not eligible for mortgage is never a good news, at least for people who owns those houses. Still, I don’t think down payment or anything similar has anything to do with the regulations that caused it.

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