Housing is  highly regulated for a very good reason. Health, well-being, and environmental conservation need to be ensured for communities, homebuyers, and renters.  But we’ve put so many uncoordinated areas of government in place that the cumulative effect is hindering our ability to keep up with the housing needs of a changing society.

Each regulation creates a benefit and imposes a cost.  Since most new rules come without implementation funding, it’s homeowners and tenants who end up paying through higher mortgages and rents. This is a key, and often undiscussed, part of the housing crisis.

Our system does not grant any single entity the authority or even the responsibility to consider and track the cumulative costs, impacts, and results of housing regulations.  As early as 2005 the U.S. Department of Housing and Urban Development’s (HUD) Office of Policy Development and Research (PD&R) was reporting that the complexity of the housing regulatory framework negatively impacts housing development. In 2024, the National Association of Homebuilders (NAHB) claimed that 24% of the construction cost of new single-family homes and 41% of multifamily housing was due to regulation, up from 31% in 2018.

We’ve discussed housing supply limitations due to local land use controls.  But the historically high price of housing, which is more expansive relative to income levels than ever before is not just a supply and demand problem, and all-time high of housing costs will not be rectified through zoning reform alone.  There are many factors restricting housing supply and increasing construction costs.  Most are local, but housing reform discussions often ignore those due to state and federal policies.

There is an almost invisible web of agencies regulating bits and pieces of the housing ecosystem.  Their rulemaking is typically done with neither the authority nor the requirement to consider whether their policies promote, or hinder, available and affordable housing.  They come from surprising places like:

• The National Environmental Policy Act (NEPA) and Clean Water Acts regulate far more housing projects through site issues than people know, often involving multiple, independent State and Federal Agencies from the Army Corps of Engineers to the Bureau of Land Management to Title 5 of Mass 310 CMR 15.000.
• The Fair Housing Act (FHA), part of the 1968 Civil Rights Act, was enacted to prevent discrimination in the sale, rental, and financing of housing. It also includes minimum property, occupancy, size, and accessibility standards governed by a highly prescriptive design manual first issued in 1996 and only updated once in 1998.  In comparison, Massachusetts is about to issue the 5^th update of the building code since 1997.
• The Americans with Disabilities Act (ADA) was adopted in 1990 and last updated in 2010. The ADA Standards for Accessible Design contains requirements that conflict with both FHA and state accessibility standards. Sometimes more restrictive and sometimes less, it also has the effect of increasing the size of some bathrooms and kitchens, making housing units bigger, increasing cost and environmental/carbon impacts.
• Building Codes vary state by state but are generally based on the IBC (International Building Code) and NFPA 101 (National Fire Protection Association), which are appropriately concerned with life and property safety – not how much cost is added to meet new, better code requirements.
• There are state accessibility standards, plumbing codes, electrical codes, and especially important for housing, environmental and energy codes like stretch codes and the Home Energy Rating System (HERS).
• On top of this, there are regulations like OSHA (Occupational Safety and Health Administration) which control work and labor practices at housing construction sites.

We are not questioning whether codes and regulations are necessary to protect people and property.  They are.  But an ever-expanding hodgepodge of inconsistent and sometimes contradictory rules at federal, state and local levels adds time and money to an already slow and expensive process.  Technical requirements are more and more sophisticated, demanding additional specialists whose fees add to the costs paid by everyone from homeowners to developers, community development corporations to housing authorities.

Every dollar spent on fees for lawyers, engineers, architects, HERS consultants, energy modelers, art and accessibility consultants is money not available to build more housing.

There is no doubt that housing today is nicer, better performing, and safer than what was built 50 or 60 years ago.  Older buildings waste energy, might not have an elevator, are unlikely to have more than one bathroom per apartment, almost never have laundry, and are unlikely to be accessible for people as they age in place.  But all those improvements cost money, making homes more expensive to build, own and rent.

Housing design and construction costs have escalated far faster than inflation over the last 30 years due to more expensive labor and materials, and all of these additional requirements.  Advocates correctly say that the changes they fought so hard for add only nominal bumps to overall costs. A 2023 joint Wentworth, MIT and Builders & Remodelers Association of Massachusetts study concluded that the stretch energy code and passive house standards only increase construction costs by roughly 2 to 4%.  The services of a HERS rater are only around $1,500 to $3,000. NFPA says that residential fire sprinkler systems are only about 1% of the construction cost.

But adding any cost to housing that is already too expensive for most people is antithetical to the goal of creating more affordable housing. It is true that the energy code reduces the cost of operation and that there are programs to defray the cost for these improvements.  But if you can’t qualify for a mortgage or afford monthly rent, rebates and refunds don’t help much.

Massachusetts is in the top ten of states with the most expensive electricity.  Actual utility costs here often exceed federal subsidy allowances, disproportionately impacting people with low incomes. The MIT/WIT/BRAM study looked at recent energy code updates and their impact on housing affordability.  Applying a 3.7% decrease in monthly energy costs associated with going from a HERS scores of 55 to 42, multi-family renters in homes built since 2010 would save tenants roughly $1 in monthly energy costs.

They also found that the passing on an “estimated 2.4% increase in construction costs to renters would result in roughly 2.17% of current renter households in comparable buildings not being able to afford those new units.”  Two percent may not seem like a large percentage, but that’s almost 24,500 of Massachusetts’s most vulnerable families.

Developers, non-profits and municipalities trying to build workforce/subsidized housing face even greater costs related to regulatory and compliance issues.  Every public funding source comes with limitations, legal hurdles, and use requirements/restrictions. Each program has limited funding, so developing affordable and workforce housing requires complex “capital stacks” from multiple sources, costing more time and money to create and manage them.

HUD alone provides funding through 20 different discretionary grant programs directly funding projects, states, municipalities, and housing authorities (Community Development Block Grants (CDBG), HOME, Housing Choice Vouchers, RAD, CNI) and via the IRS, the largest driver of affordable housing development, the Low-Income Housing Tax Credit (LIHTC).   LIHTC is a good example of an important program whose regulatory inflexibility often creates adverse impacts when, for example, lower/moderate income households end up being displaced during critical recapitalization of older projects.

One successful example of navigating the funding process was The Beverly, a 239 unit, all workforce housing project right near the Boston Garden. Opened in 2017, it is reserved for households with incomes between 30 percent to 165 percent of area median income.  Financing involved combining 25 city, state and federal agencies, which is far beyond the ability of almost all developers.

Regulation is important.  Protecting communities, homebuyers, renters and taxpayers from fraud and abuse is one of the government’s primary responsibilities. But every dollar spent on process, regulation and compliance is one not spent constructing buildings for people to live in.  And when housing requires government funding, a decent percentage of the subsidy ends up being used to pay for compliance with the rules that come with the aid.

With so many housing projects neither financially viable nor affordable for occupants, it seems like a good time to talk about policy benefits and their cumulative costs.  When regulation makes up between 20% and 40% of housing construction costs, the consequences of regulations and funding may be just as important to housing production as zoning reform.

Next time, we’ll talk a bit about the government’s own housing needs and what it could do differently with the resources it already holds.

Scott Pollack is founder of SRPlanning (SRPlan.net) and serves as Co-Chair of ULI Boston/New England’s Housing Roundtable. Susan Connelly is Chief Operating Officer of Housing Opportunities Unlimited. Please send any reactions, comments, or ideas to Scott at [email protected].