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    Government Regulations Costing Home Owners Big Dollars

    May 12, 2016

May 12, 2016

Government Regulations Costing Home Owners Big Dollars

The demand for housing is outpacing the supply, which is pushing prices higher and keeping a lot of people out of the market.  Listings are selling quickly and often at full asking price or more,which is just fueling the fire.

New construction seems to be in full swing, so why are the builders not able to keep up with the demand?   It’s the permitting that is creating a huge bottleneck which is delaying the delivery of new homes and costing the home buyers a premium.

Land costs are also rising, but the land entitlement process – in which the builders are given approval from the government to start is often a monumental task.

Getting approvals to build houses on a piece of raw land involves complex engineering to conform to all the governmental regulations including roads, utilities, and storm water management, along with the myriad of sub-division rules on lot size, shape, setbacks, topography, and soil conditions to name a few.

The actual approval process will go through many different departments to weigh in on the plan.  The land development agency, zoning department, wetlands, engineering, and traffic, all have to review the plans for compliance.  The City and State Departments of Transportation can require improvements that are not even on the developer’s property.  When revisions are required, the re-submission starts at the beginning again.

Transforming raw land into a property that has entitlements to build is a high risk process, but it is also when the greatest increase in value of the property is realized. Industry estimates are two to five times the value.  But there is no guarantee that the project will be approved and no given rules on the amount of time it can take or what the cost of the site improvements will be once the approvals are in place.

The cost of entitlement can make up a substantial amount of the final cost of a home.  The price of the land and the approvals may make up to 23 to 25% of the cost of the home, with 8 to 10 percent of that simply getting permits.  Increased site improvements required will also be passed on to the home buyer.

The cost of regulation on land was even noted by President Barack Obama’s Council of Economic Advisers as a reason for the increasing costs of housing.

But regulations differ in various states and cities.  A study from the University of Pennsylvania was undertaken in order to place each state in the US on a spectrum and is referred to as the Wharton Residential Land Use Regulatory Index.  Larger populations and those states considered more environmentally conscious seem to be more restrictive, whereas the less dense states and the ones promoting business growth tend to be more supportive.

Check out below where your state falls on the spectrum, and how much land regulation may be driving up the cost of a home: Learn more!


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1 Comment
  • Githa, June 22, 2016 Reply

    Learning a ton from these neat articles.

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