Code Concerns Can’t Cool Builder Expectations 

By Ryan Dosen

 

Builders, faced with increasing costs and stricter building codes, remain optimistic about the future and the demand for their product. The National Association of Home Builders (NAHB) just reported a Housing Market Index (HMI) of 58—the second highest monthly reading in 9 years. Despite their optimistic mindset, some builders still feel the walls closing in with the onset of high-cost, low-return code mandates.

 

Stricter Building Codes

Paul Emrath of the NAHB wrote that “originally, building codes were designed to establish minimum safety standards for newly built structures, but codes have increasingly been seen as a tool for advancing other public policies, such as energy efficiency.” Emrath says that this trend is causing builders to become concerned about some of the code changes increasing costs “substantially, as well as needlessly.”

The NAHB/Wells Fargo Housing Market Index polls home builders every month to gauge their sentiment for the housing market. October’s HMI survey asked builders a new question: “How concerned are you about building codes becoming too stringent and driving up costs without a measurable improvement in safety or other benefits.” Builders were asked to respond on a scale of 1 to 5, with 1 being “not concerned at all” and 5 being “extremely concerned”.

35 percent of surveyed NAHB members responded to October’s new survey question by stating that they were “extremely concerned” about building codes overall becoming “too stringent and driving up costs without a measureable improvement in safety or other benefits.” Only 6 percent of surveyed home builders reported that they were not concerned at all.

58 percent of home builders were “extremely concerned” about the building codes for fire sprinklers and 38 percent were “extremely concerned” about the codes for energy efficiency.

In comparison, only 9 percent were “extremely concerned” about plumbing and gas codes, while only 15 percent were “extremely concerned” about structural requirements and electrical codes.

 

Projected Housing Starts

National Association of Realtors (NAR) Chief Economist Lawrence Yun recently noted that despite the soaring builder confidence, the recent pace of single-family home construction has only been running at about half the normal rate, or about 650,000 units annually. Yun says that the divergence can possibly be explained by “extreme difficulties” faced by smaller builders for obtaining construction loans. Yun believes that many of these smaller builders may have been forced out of the market or business, allowing larger builders to gain market share and provide greater influence in the sentiment polls.

 

Conclusion

The fact that many home builders are concerned about rising costs from overbearing and possibly unnecessary building code changes should not be glossed over. Obviously, if builder costs are going up, we can and should expect that the cost of new homes will follow suit. It is encouraging that despite their concerns, home builders remain optimistic. This tells us that the builders are confident that not only will people buy new homes, but that people will be willing to pay more money for those homes. This sentiment is consistent with the general opinion that the housing market, while arguably somewhat fragile, is recovering and will continue its recovery.

With regard to the builder opinion that many of the code enhancements may be no more than costly vestigial pawns in a public policy battle, that is a topic for another article.

All I will say is that my grandfather used to tell me to be careful what I wished for, because I just might get it. When there is a call for improvement in anything, there will usually be a cost. That call should usually be accompanied with the answer to the question: “At what cost?”

 

— Ryan Dosen manages The Wayne Megill Real Estate Team of Keller Williams Brandywine Valley in West Chester. Contact Ryan Dosen for buyer or seller representation or for more perspective on the local and national real estate market by emailing rdosen@megillhomes.com or calling 610-399-0338. Please also visit The Wayne Megill Team blog at www.PAHomesAndRealEstate.com.

 

This article was published by 21st Century Media and the Daily Local News (West Chester, PA). To read this article on the the newspaper’s site, please visit the Daily Local News.

 

 

To view all of Ryan Dosen’s 21st Century Media real estate columns, visit http://www.dailylocal.com/search?text=dosen.