"No. 1, you see it in just the pure requirements. Those requirements can be a very lengthy list of things you maybe wouldn't have seen 10, 15, 20 years ago. But you're also seeing it in fees that counties and cities impose on new home construction. Fees can be anywhere from $50,000 to $100,000 per home to build," said Taylor Morrison's Bodem. "Things like that ultimately get passed on to the consumer and the price of housing. That's one reason why you see the cost of housing so expensive, especially here in Southern California."
How much more expensive? Compliance costs make up 24 percent of the cost of a newly built home, and as home prices rise that share isn't changing, meaning the costs to buyers is rising. The cost of compliance with government regulations has increased the price of a new home, on average, by 30 percent in the last five years, according to a survey by the National Association of Home Builders.
"The costs imposed during construction increased the fastest, rising by almost 50 percent, but even the more modest change in the impact of regulation imposed during development represents a 19.1 percent increase," wrote Paul Emrath, economics and housing policy analyst at NAHB
The supply of entry-level existing homes for sale in the United States is historically low and falling. It would seem like a great opportunity for homebuilders, but instead they are turning away from the product because they simply can't afford the rising costs of both land and new regulations on that land and on construction.
"When you start with a high land basis, it's very hard to end up with a purchase price that the first-time buyer finds affordable," said Stuart Miller, CEO of Miami-based Lennar at a homebuilder conference held this week by JP Morgan.
Only DR Horton, the largest U.S. homebuilder, has an entry-level product. The sheer volume of homes it builds allows it to do what other builders either can't or don't want to do.
"There is much bigger demand at the entry level. They would love to do entry level. They just need to be able to make money to do it, and it's getting increasingly hard to build a home for less than $250,000," said Burns.