As a Savannah-based home builder with more than 40 years of experience, I have seen that every year, entry-level housing is increasingly difficult to build.
I am not alone. There are many reasons why builders across the U.S are unable to build affordably priced homes targeted to the critical first-time home buyer: Rising costs stemming from historically high price levels for lumber and other building materials, supply-chain bottlenecks that still exist two years after the Covid-19 pandemic began, surging interest rates, excessive regulations, overly stringent building codes, excessive zoning and density requirements, and a persistent lack of construction workers.
Finding and enacting solutions to these housing challenges is critical to fulfilling the housing needs of all Americans. It will require policy makers at all levels of government to make housing a top priority.
Since the start of the pandemic lumber prices are up nearly 75% and currently stand above $600 per thousand board feet even after posting significant drops in recent weeks.
While this has hit first-time home buyers particularly hard, it doesn’t tell the full story. The 25-year historic, pre-pandemic average price of lumber (1995-2019) was $343 per thousand board feet. Lumber prices were $1,500 per thousand board feet last May and have been trading above the once unthinkable $1,000 mark for much of the past year.
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As a result, on average, since the spring of 2020, lumber prices have added $14,300 to the price of a typical single-family home.
To ease this unprecedented surge in lumber prices since early 2020, federal policy makers can start by increasing timber production from federal lands in an environmentally responsible manner. Today, timber production on federal property is less than 2 billion board feet; in the 1990s it was more than 10 billion board feet.
And since the U.S. relies on Canada for nearly 30% of its lumber supply, the Biden administration can put an end to the tariffs on Canadian lumber imposed by the Trump administration in 2017. The tariffs, which currently stand 17.99%, artificially raise lumber prices and act as a tax on American home buyers.
On the tax side of the ledger, the 2017 tax law changed the mortgage interest deduction (MID) so that it now is a tax benefit primarily for wealthy homeowners. A better policy would be to scrap the MID in favor of a $15,000, refundable, first-time home buyer tax credit to make homeownership more accessible for working-class families.
On the labor front, Congress can push for more money for vocational training instead of focusing on four-year colleges. A shortage of 449,000 construction workers nationwide is delaying home building projects and raising housing costs. These are good-paying jobs (while the U.S. median wage is $45,760, half of payroll workers in construction earn more than $49,000), and we need more electricians, plumbers, framing crews and other skilled workers
Then there is the high cost of regulations. Studies released by NAHB show that regulations imposed by all levels of government account for $93,870 — or 24%–of the average sales price ($397,300) of a new single-family home, and more than 40% of the cost of multifamily development.
Few would argue that safety standards for construction workers are unnecessary, but these high regulatory costs raise questions about how thoroughly government is considering the consequences. One academic study, for example, found it took an average of 788 days to prepare a submission and receive approval for an individual federal wetlands permit.
And builders across the nation often must confront delays of up to several months in breaking ground on new projects because of zoning and subdivision requirements, slow permitting processes and NIMBY opposition.
Local design standards that have nothing to do with safety have become common–requiring brick siding, for example, which can be nearly three times the cost of vinyl siding. Some localities require builders to dedicate land to the government for parks or schools or otherwise leave it unbuilt. That cost must be recouped in the in the price of the home.
Of course, most housing is local and, in many areas, less tangible factors such as community perceptions, expectations and demands also play an important role in determining the availability and cost of housing.
To help builders produce entry-level housing in local communities, state and local officials must overturn inefficient zoning rules, lower impact fees and other upfront taxes associated with housing construction, expedite approvals for affordable projects, ease density and growth restrictions, and allow a range of housing types, including multifamily.
These are practical solutions that are paramount to enable builders to construct homes at entry-level price points.
It is critical that we all succeed in this endeavor because the first-time home buyer is the linchpin to the entire buying process. Rents are up because renters cannot afford to get into a starter home. And those who buy a starter home can’t move up because no one can afford what was an entry-home five years ago.
Builders desperately wish to seize this giant market that has not been sufficiently tapped, but unfortunately it is becoming increasingly economically infeasible. Neither the public nor private sector can meet the challenge alone. But if officials at all levels of government put into place the policy solutions outlined above, this will bend the rising cost curve and allow more builders to construct more homes at price points that will allow more Americans to get their first rung on the homeownership ladder.
Jerry Konter is the founder and president of Konter Quality Homes in Savannah, Ga., and the chairman of the National Association of Home Builders.
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