Fewer Regulations, Lower Housing Costs?

No matter what you may think of him or his candidacy, or what else he may be, Republican presidential candidate Donald Trump is a builder and developer and he seemingly knows his stuff when the subject is government regulation and fees related to the construction industry. What he plans to do about the increasing burden of regulation and rising costs was the subject of an address he gave last week at the midyear meeting of the National Association of Home Builders (NAHB) in Miami.

Trump offered few specifics, but he pledged to NAHB directors that he would "slash regulations" in order to shore up the housing industry in the United States. Saying that "Homebuilding is very close to my heart. That's where I grew up," Trump told attendees that he would do what is required to reduce the skyrocketing costs of regulation and government fees that account for about one quarter of the costs of every new home sold in this country.

He pointed to increasingly stringent regulation, burdensome building requirements and as rising costs reasons the home building industry, in many locations, is still experiencing slow growth since the recession. He also cited national statistics that show the home ownership rate dropping to the lowest level in almost 50 years, down from 63.5% in the first quarter to a current 62.9%, the lowest since 1965, according to statistics. 

Paying for Regulation

An NAHB study claims that 24.3% of a new home's selling price is attributable to local, state and national regulatory costs. Although the percentage is generally in line with 2011 estimates of 25% for such fees, the study notes that costs have increased dramatically, resulting in an actual dollar increase of nearly 30% in the past five years. Today, it is estimated that the average home's selling price includes about $85,000 that is collected by various government entities in the form of direct charges for permitting, impact fees, utility connections, additional compliance costs and new safety requirements. 

"I know what you're going through," he noted.  ... "You're being driven wild with regulation." Trump, whose father was a builder, and who claims vast experience in the industry, continued, "I think we should get that (regulatory cost) down to 2%."

Whether that is realistic or not, and exactly what his policies might be if elected, was not covered in detail, but Trump's position differs substantially from his opponent's take on the problem. Both Trump and Democratic candidate Hillary Clinton, however, have spoken of their commitment to institute policies that will contribute to the recovery of the housing market.

Reportedly, a Zillow survey conducted in May before either candidate was officially named their party's standard bearers, concluded that Clinton's policies would be more beneficial for the industry than either Trump's or Bernie Sanders' suggestions. The more "centrist" approaches favored by Clinton and Republican John Kasich were viewed at the time as having a more positive effect.

"Build Jobs, but Eliminate Bureaucrats"

Trump told the NAHB listeners that his approach would eliminate the stumbling blocks that "kill jobs," and that he plans to "eliminate bureaucrats" who are responsible for the regulations that stifle job growth. He also reiterated his intentions to reduce business income tax, to institute a climate that favors small business, and to appoint Supreme Court justices who would have a positive influence on housing industry growth.

In Michigan, although there is good news in some markets, the outlook is bleak in other areas. Recently released figures, reported by Builder Magazine, showed a 57.8% drop in new home closings over the year ended in April, and last year's data had recorded a sharp drop compared with the previous year. New home closings in the area accounted for only 1.5% of total closings, down from 2.6% of the total during the previous year. Prices of new housing, however, jumped substantially in year over year comparisons, and showed a 2.5% increase between April and May.

Trump acknowledged during his address that new home prices are rising out of proportion to the average income, which has seen only a 14.4% rise, less than half the increase in regulatory costs.

Layers of Housing Costs

In addition to the direct costs of regulation, there are ancillary costs that result in delays and scheduling difficulties, adding another layer of cost for interest, wages and various other tariffs. The NAHB study of the regulatory burden noted that approximately 14.6% of total home price is attributable to development costs, while the remainder accrues to the builder.

Builders in Michigan can relate to stricter code requirements, the stipulations for Michigan Builders Training and Continuing Education and Builder Licensing regulations. As time ticks down to the November election, it will be interesting to see if either candidate proposes any specific reforms that will have an effect on the spiraling costs and increasing regulation of the building industry, particularly as it is related to new home construction.

Although Candidate Clinton did not herself address the NAHB board of directors, a spokesman for her campaign did address the group on her behalf, noting that "housing would be a priority for Clinton's administration."

A plan she introduced in February, which was lauded by NAHB at the time, earmarked $25 billion for housing as part of a broad economic revitalization effort for the country. That plan included such things as down payment assistance for home buyers, housing counseling programs, revamped credit risk evaluations, more affordable rental housing and revised lending rules.