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How the Hidden Costs of Housing Affect Affordability
Rising home prices continue to put homeownership out of reach for many Clark County citizens. The Columbian reported in June 2021 that the average sale price has jumped from $501,100 in April 2021 to $520,600 in May 2021. Furthermore, the median price climbed from $445,000 in April 2021 to $465,000 in May 2021. According to recent economic analysis by our state counterpart, the Building Industry Association of Washington, 72% of Washington households are priced-out of the ability to purchase a home.
What factors are contributing to these rising prices? The Joint Center for Housing Studies’ “The State of the Nation’s Housing 2019” report points to the shortage of housing as a key factor putting pressure on sales prices, especially for modest-income earners. Builders are struggling to meet demand for new housing because of regulatory burdens, land and material costs, and labor shortages.
“Essentially you have three buckets of costs. One is land, one is soft costs, and one is what’s known as hard costs,” explained Avaly Scarpelli, BIA’s Executive Director, “with hard costs reflecting labor and construction costs, such as the price of materials, and soft costs reflecting components such as fees, taxes, consultants and financing. “All of those things combine together to give you the price of a new home.”
The National Association of Home Builders estimates that regulations imposed by government at the federal, state, and local levels account for $93,870 of the final price of new single-family home. Of the $93,870, $41,330 is due to a higher price for the finished lot, attributable to regulations imposed during the lot’s development. The remaining $52,540 is the result of regulatory costs imposed on the builder during construction, after the builder purchases the finished lot.
Permits are another regulatory burden that can add to the price of a home. What used to take a few business days can now take weeks, sometimes even months, to obtain, builders noted, and cost up to $60,000 or more, depending on scope and complexity of the project. Permits are to be in the builders’ possession before anything has even been done to the site.
“It’s the first-time homebuyer and those in their golden years looking to downsize that are going to feel price increases the most,” said Scarpelli. “If the goal is affordable housing, more regulation is not the answer. Clark County is drastically under-built and builders can’t build fast enough to satisfy demand. Bidding wars and homes being sold at well over the asking price is the new normal. In a time when housing is desperately needed, now is not the time to make radical changes, like fee increases.”
With home prices on the rise, rent staying at a high premium, it’s harder than ever for young prospective home buyers to break into the market. Scarpelli adds, “you’ve got to save up for a down payment and closing costs, which can easily amount to 10% or more of what the price of the home is. That’s a lot of cash, especially when young families have a lot of other expenses as well, such as student debt and auto debt.”