Biden’s Plan for Unaffordable Housing

A new HUD energy rule will raise the cost of home construction when homes are already out of reach for many Americans.

WSJ editorial. 

"President Biden touts his plans to make housing more affordable. Meantime, the Department of Housing and Urban Development is mandating costly new energy standards for new homes insured by the Federal Housing Administration (FHA), which will become de facto nationwide building codes.

HUD last Thursday announced that it will require new homes financed or insured by its subsidy programs to follow the 2021 International Energy Conservation Code standard. The nonprofit International Code Council sets what are supposed to be model energy building standards every few years, which states and municipalities can adopt.

Many governments have declined to adopt the 2021 standards because of their higher costs. The National Association of Home Builders says the energy rules can add as much as $31,000 to the price of a new home. It can take up to 90 years for a buyer to realize a payback on the higher up-front costs through lower energy bills.

Not to worry, HUD says taxpayers will help cover the cost. It “is anticipated that many builders will take advantage” of numerous tax incentives in the Inflation Reduction Act “as well as rebates that will become available in 2025 or earlier for electric heat pumps and other building electrification measures,” the rule says.

These incentives include a $5,000 per unit tax credit for “zero energy” multifamily construction that meets prevailing-wage requirements that also raise building costs. HUD adds that builders may also “take advantage of certain EPA Greenhouse Gas Reduction Fund programs, especially the Solar for All initiative” and an investment tax credit that can offset 50% of a solar project’s cost.

Notwithstanding these taxpayer handouts, HUD estimates that the new standards will raise the cost of a single-family home by $7,229 and the average annual mortgage payment by $439, assuming a 5.3% mortgage interest rate. But mortgage payments will increase by much more at today’s 7% to 8% interest rates and could easily offset notional savings on energy bills.

By the way, the government also subsidizes FHA mortgages for low-income borrowers by insuring them at below-market rates. While Thursday’s new rule putatively applies only to new homes financed by HUD programs, it will sweep more broadly. Developers won’t build homes to separate codes—one for potential FHA buyers and another for everyone else.

“Many people have been caught by surprise when utility costs spike,” HUD community planning deputy Marion McFadden said. “Families should never have to find themselves making hard choices about whether to heat their home in winter or use cooling during a heat wave.” Agreed.

But more Americans will have to make such choices because of the Administration’s burdensome climate rules. Americans are paying about $50 billion more every year for electricity than they did when President Biden entered office. If Mr. Biden wants to reduce housing and other costs, how about a regulatory cease-fire?"