Regulations that are making housing unaffordable

By John Phelan. John Phelan is an economist at the Center of the American Experiment. 

"Recently I wrote about the Panelház of Budapest, dwellings which were mass produced in parts by the communist government of Hungary and assembled onsite. I didn’t write about these grim places to recommend them, but they appear to have their attractions for some.

In a recent op ed for the Star Tribune, James Schmitz Jr., a senior economist at the Federal Reserve Bank of Minneapolis, wrote that housing was unaffordable because the housing industry’s prevents the “production of homes in factories.” 

In a convincing response, also in the Star Tribune, Paul Heuer, a developer and former city engineer, claims that:

This is inaccurate. Most builders currently use factory panelized wall sections. Many are heavily investing in additional off-site technologies that he claims are being excluded from the industry.

Instead, Heuer writes:

Let’s discuss in more detail an issue that Schmitz dismisses as a cause of decreasing housing affordability: the cost of regulations.

Indeed. A point I made in 2019 is that excessive taxes, fees, and regulations effectively make affordable housing illegal to build in Minnesota. When I made that point, people often asked for specifics. In his op ed, Heuer provides examples of:

….regulations and processes that do not deliver value, such as requiring stone on the fronts of starter homes, having five or six wetland experts meet on site to verify that wetland boundaries are correct, navigating through duplicative stormwater reviews from both cities and watershed districts, completing Environmental Assessment Worksheets for modest size neighborhoods, and thousands of other regulations where cost has never been considered.

All of these serve little purpose but do make housing more expensive.

But Heuer makes another interesting point:

…some of the most expensive regulations would likely be viewed by the public as valuable and worth the high cost:

• Stormwater: Since the early to mid-1980s, we have learned a great deal about how to minimize flooding and protect the water quality of lakes and rivers. Dealing with stormwater now uses up 5% to 15% of land in a new neighborhood.

• Wetlands: The Wetland Conservation Act resulted in the protection of this valuable resource, but it has certainly removed a great deal of developable land from our neighborhoods, increasing costs.

• Energy efficiency: Another expensive regulation was implemented statewide in 2015. This legislation dramatically increased the energy efficiency of new homes.

Combined, just these three regulations, while producing a positive impact on the environment, have significantly increased the cost of homebuilding.

This, too, echoes a point I have made previously: namely, that unaffordable housing is the price policymakers ask us to pay for high taxes, fees, and regulations. You can think that these regulations produce benefits, but these benefits come at the cost of less affordable housing. You may still decide that the benefits outweigh the costs, but all too often policies such as these regulations are presented as being all benefit and no cost."