Frequently we talk to developers and builders about their projects.
Usually, the story they share is how going to the township meeting is more like a combat mission and less like a victory lap. Even though our country needs more housing units in every price range, they are treated like hostile invaders instead of welcome comrades.
Construction Costs and Tariffs
The costs to build an apartment unit or single-family home continue to increase. By the time land, infrastructure costs, permitting fees, labor, and material costs are taken into account, the cost of an apartment unit can surpass $225,000 in our region.
These costs don’t even take into account any impact from tariffs. Industry groups expect that impacts on construction costs will be minimal on the cost of a home, as many components like lumber are already sourced in the US.
- In talking with numerous developers, the prevailing current view — for now — is construction costs will increase 1-3% on wood-frame builds (which represent the vast majority of apartment/SFH projects).
- The impact is likely higher if you’re building steel-frame high rises (which were already becoming cost prohibitive even prior to tariffs), relying heavily on Canadian lumber, and/or sourcing most materials from China.
Why Is Building So Expensive?
What adds a significant burden to housing cost is regulation — at the local, state, and federal level, in many forms.
Everything from environmental conditions on protected species (bog turtle, anyone?), storm water maintenance permits, and site conditions like traffic lights with infrastructure upgrades increase the cost for each housing unit accordingly.
- To build affordable housing, many developers have relied on tax credits and government incentives, which come with strings attached but much-needed financing. However, these incentives come with multi-year timeframes and rent restrictions, making the ‘affordable housing unit’ even pricier.
- Because of this increase in cost with subsidies, many developers have begun turning away from tax credits, grants, and government aid to expedite the process. In the extreme, the cost of building affordable housing in Los Angeles regularly tops $1 million per unit, nearly double the cost in states like Georgia, Texas, and Arizona, according to a government report.
- In some areas, permitting fees, inspection fees, and zoning difficulties comprise 40% of multifamily and 20-25% of single-family development costs.
The Cost to Build a Single-Family Home
On the single-family side, the National Association of Home Builders has produced a survey detailing the breakdown of actual costs.
NAHB’s most recent Construction Cost Survey shows that, on average, 64.4% of the sales price is due to construction costs and 13.7% to finished lot costs. On average, builder profit is 11.0% of the sales price.
Keep in mind that the ‘finished lot price’ includes many development fees and permitting as well. In addition to permitting fees within the lot cost, the builder also pays additional fees directly, making up 7.6% of the total cost of a home.
What Can We Do to Help Make New Housing Affordable?
Speaking out to help reduce the overall permitting and regulation cost will go far to increase affordability and decrease the cost for every housing unit.
Here are a few ideas you can participate in to help bring change:
- Get involved in your municipality or county government. Much of the legislative burden comes from the most local level of housing planning, and being a voice for moderation will help.
- Contact your local government — county commissioners, state representatives, and senators. Most officials want to see affordable housing, but may not know how best to bring it about. Encouraging them to focus on de-regulation will increase affordability.
- Join organizations like the Urban Land Institute, which advocate and educate for housing on all levels.
With a common-sense approach to regulation around housing, many more housing units will be added to our national supply. With more units available, housing becomes more affordable, because the balance of supply and demand can reach equilibrium.
Many clients we serve appreciate the practical approach we bring to help the greater good while also running a profitable endeavor. Join us in advocating for more building to bring housing to America.
