Regulation Adds Up to 41% to U.S. Homebuilding Costs, Congress Is Told

What this means for buyers, investors and local governments

We see three immediate takeaways for different market participants.

For buyers and renters:

• Compare total monthly carrying costs, not just mortgage rates. Insurance and taxes can shift affordability dramatically.
• Look for jurisdictions that issue permits quickly and allow accessory dwelling units or smaller-lot construction; these places are likelier to add supply and avoid sudden shocks in pricing.
• If you rent, examine programs and tax rules that might allow you to monetize spare rooms temporarily; policy changes could make this easier in coming years.

For investors and developers:

• Expect projects to carry higher initial compliance costs in many jurisdictions; factor regulatory cost shares of 24% for single-family and 41% for multifamily into pro formas where local rules are stringent.
• Target markets with predictable permitting timelines and stable insurance markets.
• Consider conversions and infill projects that use existing structures; unlocking underused housing stock can be faster than greenfield development.

For local governments and planners:

• Streamlining permitting and revising zoning to allow starter homes and more density can widen the pool of potential buyers.
• Reassess the net cost-benefit of adopting the most recent model codes if upfront costs outweigh long-run gains for your constituency.

Risks and trade-offs: why reform is complicated

Witnesses and members conceded that not all regulation is bad. Health, safety and welfare standards protect occupants and neighborhoods. The debate is about which rules add genuine public value and which add cost without clear benefit.

Risks of rapid deregulation include:

• Poorly designed rollbacks that raise safety or environmental risks.
• Local backlash if density increases without investments in infrastructure and services.
• Short-term market disruptions if tax incentives or capital gains changes alter seller behavior abruptly.

We must be realistic: rolling back regulations can ease prices in some places while in others supply constraints are driven by geography, labor shortages, or materials costs that regulation alone does not explain.

The political reality: bipartisan friction, practical options

The hearing showed a partisan framework—Republican members emphasized market-based reforms and rolling back certain federal energy rules, while witnesses acknowledged the need to preserve essential protections. That sets up a classic political negotiation:

• Incremental, targeted reforms that reduce unnecessary costs without sacrificing safety may find bipartisan support.
• Big changes, like sweeping federal deregulatory actions, will meet resistance from constituencies that prioritize environmental or safety standards.

The policy tools with the most immediate, measurable supply impact include permitting reform, accessory dwelling unit legalization, and tax changes to reduce the lock-in effect for current homeowners.

Our analysis: what will actually move the needle

Based on the evidence presented, some measures are more likely to produce immediate supply gains than others.

Most promising near-term actions:

• Unlocking existing housing stock by permitting and tax changes. The witnesses estimated 3.2 million rooms could come to market over 10 years through an income tax exemption for newly rented rooms.
• Permitting and zoning reform at the local level to allow more small-lot and multifamily construction.
• Targeted help for renters to reduce cost-burden and increase mobility toward homeownership.

Longer-term or more uncertain effects:

• Repealing federal energy codes could reduce upfront costs, but paybacks and energy savings complicate the case. The hearing noted the HUD/USDA 2021 energy code for federally assisted projects adds thousands to costs for marginal energy gains.
• Raising capital gains exclusions from $250,000 to $500,000 would reduce the lock-in effect and might encourage more listings, but the size and timing of its supply impact depend on homeowner behavior.

Frequently Asked Questions

Q: How much of housing cost is due to regulation?

A: Witnesses at the hearing stated that 24% of the cost of a new single-family home and 41% of the cost of multifamily projects is attributable to regulation at local, state and federal levels.

Q: Are renters more affected than homeowners?

A: Yes. The subcommittee heard that 22.4 million renter households pay more than 30% of their income on rent, and half of those pay over 50%—which constrains savings and future homebuying prospects.

Q: What is the proposal to unlock spare rooms?

A: Experts testified that an income tax exemption for newly rented rooms could free up an estimated 3.2 million rooms from 32 million spare rooms in owner-occupied single-family houses over a decade, adding immediate supply.

Q: Will rolling back energy codes save buyers money?

A: Witnesses argued that some recent energy mandates add thousands to upfront costs and that paybacks can take decades in certain cases. Whether rollback is appropriate depends on local energy prices, climate risks and the expected lifetime savings from efficiency measures.

Bottom line for buyers, investors and policymakers

The hearing made clear that regulation is a quantifiable component of U.S. housing costs. Where you live and invest matters as much as mortgage rates. For buyers, focus on total carrying costs, and for investors, incorporate a regulatory cost line item of roughly 24% for single-family and 41% for multifamily in strained jurisdictions. For policymakers, unlocking existing housing through tax relief and easing zoning for starter homes appears to offer the fastest supply response.

If you are considering a move or an investment, check local permitting timelines and insurance market conditions first. A practical step: investigate whether your local government allows accessory dwelling units or short-term room rentals because experts told Congress that converting existing rooms could produce millions of units far faster than new construction. This kind of change is where policy and market action can deliver measurable supply within years rather than decades.