What Can Policymakers Do About Surging Building Materials Costs? – Pacific Research Institute

What Can Policymakers Do About Surging Building Materials Costs?

According to a recent study by real estate data firm CoreLogic, 2021 saw the highest annual growth in home values since 1979. Across high growth regions like the Mountain West and South, this has triggered a building boom as developers struggle to keep up with demand.

Yet even where onerous regulations aren’t standing in the way of new development—read: not California—new development still faces headwinds in the form of high building materials costs. According to one detailed study by a team at Bloomberg, increases in the cost of key building materials like copper, cement, and lumber have sent home prices skyrocketing.

What, if anything, can state and local policymakers do about those big three costs? The bad news: probably not much. To the extent that policy is driving up certain costs, federal tariffs—more so than any state or local rules—are likely to blame. The good news is that the invisible hand is working: prices for copper and lumber are already falling as suppliers respond to surging demand.

This isn’t to say that state and local regulations aren’t contributing to the problem. Across the United States, many local governments arbitrarily set architecture and building materials rules above and beyond basic health and safety standards, toward purely aesthetic ends. According to the National Association of Home Builders, these standards collectively increase the cost of a new home by nearly $11,000.

Take vinyl, a popular target of local building materials regulators. While vinyl is recognized as a safe and reliable siding material by international building codes, many local governments heavily limit its use in favor of masonry. Though some homebuyers may prefer the aesthetics of brick, others may prefer a more affordable option; regulatory prohibitions take that choice away, increasing siding costs by as much as five times.

Similar regulations dictating design features like roof pitch, patio and fence materials, or window placement work in a similar way. And taken collectively, all the added costs of these types of rules can mean the difference between a young family being able to afford a home.

Many states are taking action. In 2015, North Carolina passed SB 25, limiting the power of local regulators to set arbitrary architectural standards for new development, while reverting building materials regulation to the statewide building code. Texas and Oklahoma followed with similar bills in 2019 and 2020, respectively, returning the power to determine the design of homes back to developers and homebuyers. Similar discussions are underway in other high-growth states, like Georgia and Minnesota.

In 2019, Arkansas passed a similar bill preempting exclusionary local architectural and building materials standards, but with a bonus provision: it restricted the power of local governments to set minimum square footage on new homes, above and beyond state building code standards. As with rules requiring luxury materials or expensive finishes, local governments use these rules to raise the cost of housing. By preempting them, state policymakers can clear a path for the starter homes that are in such short supply nationwide.

With any luck, the current building materials shortage will soon pass, and surging demand will inevitably taper down. But until local and state policymakers contend with the underlying issue—the thicket of rules blocking new development and driving up the cost of homes that do get built—don’t expect relief from the ongoing housing crisis to be anything but temporary.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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