The Cost of Regulations 2025

Background

‍

Policymakers and regulators often have good intentions when they propose new regulations. However, policymakers generally consider the implications of each regulation in a vacuum before implementing them. The accumulation of regulations over time and their effect on innovation and economic growth receive little or no attention.  

‍

Take, for example, Washington’s State Energy Code. The Washington State Building Code Council considered each proposal at face value rather than an entire package. The result: A new package of energy codes that increased the cost of constructing a home, making housing more expensive by a range of $13,800 (all-electric) to $29,000 (dual fuel). Voters had to approve Initiative 2066 to protect their right to choose. Even so the State Building Code Council refuses to comply with the new law and will of the voters.  

‍

Like all policies, regulations have unintended consequences. Unfortunately, these consequences disproportionately affect low-income and traditionally disadvantaged households. According to the Mercatus Center at George Mason University, regulation growth in Washington state from 1997 to 2015 has resulted in 98,257 more people living in poverty, 2,821 lost jobs annually and 7.35% higher prices.    

‍

The Mercatus Center also reports the Washington Administrative Code alone contains 201,634 restrictions as of 2023, making Washington the 8^th most regulated state in the nation.  

‍

The increased number of regulations and costs associated with complying with these regulations has artificially constrained housing supply in Washington state. The grave reality of our state’s underproduction?  

‍

The Washington Department of Commerce estimates the state needs 1.1 million new homes in the next 20 years.  

‍

Executive Summary

‍

In 2023, BIAW produced The Real Cost of Regulations in Washington, exploring how regulations at the local, state and federal levels add to the cost of a median-priced new home across multiple counties in Washington.  According to our findings, as costs associated with regulations rise, new home sale prices also increase. This demonstrates the impact that each regulatory decision has on the affordability of housing.  

‍

Unlike other areas of the housing market, regulations present an opportunity to exercise control over cost inputs of constructing new housing units. This doesn’t mean that regulators should throw out every regulation, as many are in place to address specific legitimate issues. Many other regulations can, and should be, reviewed, reduced, and potentially eliminated altogether.  

‍

Since 2009, changes to Washington State Building Codes, and specifically the Washington State Energy Code, have added $39,876 to the cost of building a new home, with a majority of that cost borne from the energy code.  

‍

As one builder described the situation, “building codes establish the minimum standard for building, with the primary goal of protecting health and safety of residents. It makes no sense to have such a strict energy code that essentially mandates we build each home like a Tesla when a Toyota is a perfectly suitable option.”

‍

‍

As the state grapples with policies to spur more residential construction to meet unmet demand and provide housing for the unhoused, legislators and policy makers must take a hard look at their priorities. We need a mix of Teslas and Toyotas so more families can find homes they can afford. Washington will never achieve housing justice for its citizens if our current regulatory landscape continues.  

Key findings

‍

According to NAHB’s most recent analysis, regulations imposed by all levels of government account for 23.8% ($164,386) of the new home sale price. In BIAW’s most recent study of the Cost of Constructing New Homes in Washington, we utilized market data for the counties included in this study. causing our estimates to vary significantly from NAHB's estimates.  

‍

Government regulations at all levels account for approximately 29.5% ($203,976) of the final price of a new single-family home in Washington. Compared to builders in other states, Washington home builders face a rate of regulatory inflation of 5.7%. 

‍

‍

• Median New Home Sales Price: $690,701

• Base costs to build a new home: $309 per square foot  

• Cost of regulation during construction: $83,725

• Cost of regulation during lot development: $120,251

• Total cost of regulation: $203,976 

‍

Methodology

‍

The Building Industry Association used the National Association of Home Builders’ (NAHB) special study, “Government Regulation in the Price of a New Home: 2021” released in May 2021 as the basis of this study. NAHB surveyed member companies to gauge regulatory costs for the lot development phase of construction, as well as the active construction phase. It’s important to note that the survey didn’t explicitly ask for members to assign a cost to each regulation. Instead, the survey asked for members to attribute a percentage for each of the categories in the two construction phases. Below is a table illustrating the average reported regulation as a percentage of lot cost and home sales price.  

‍

NAHB found that regulation during the lot development phase makes up an average of 10.5% of the final home sales price. During the active construction of the home, it’s 23.8% of the sales price.  

‍

In BIAW’s most recent study of the Cost of Constructing New Homes in Washington, we utilized market data for the counties included in this study. causing our estimates to vary significantly from NAHB's estimates.  

‍

Based on that data, approximately $203,976 (or 29.5%) of the median new home sales price ($690,701) are costs from local and state regulations. Essentially, Washington home builders face a rate of regulatory inflation of 5.7% compared to builders in other states. 

‍

Limitations

‍

The findings should be used for illustrative purposes only. The percentages outlined are estimates provided by building industry professionals throughout the country. Because of this, it is entirely possible that the percentages could be lower or higher for the state of Washington, and within certain jurisdictions. BIAW is in the early stages of planning a statewide survey for Washington builders and jurisdictions.  

‍

‍