Where did all the starter homes go? New studies show more rules mean less building.

Where did all the starter homes go? New studies show more rules mean less building.

Conservatives are right! An increasing number of regulations accounts for housing construction that remains 35% below normal levels across the country

Paul Davidson @Pdavidsonusat USA TODAY

James and Carrie Finan have been house hunting in the Seattle area for four months in a seemingly futile race against time: They’re living in a room in James’ mother’s house and their first child is due in September.

They’ve seen about 40 starter houses that match their criteria — $350,000 or less, three bedrooms, about 1,200 square feet — and made four offers ranging from $32,000 to $82,000 above asking price. They’ve lost out each time.

“Every time we hear we’re not getting it, my heart kind of sinks,” says James, 29. “It’s been insane.”

A big reason the Finans are struggling is the regulatory morass faced by builders such as Mike Walsh. On a parcel in Sammamish, Wash., a Seattle suburb, he would like to build 36 relatively affordable houses. But since zoning changes in recent years permit just 25, he’ll have to sell each at $1.2 million to make the project profitable.

An increasingly byzantine maze of zoning, environmental, safety and other requirements partly accounts for housing construction that remains 35% below normal levels across the country, especially for affordable starter houses, builders and economists say. And that building deficit is the chief culprit behind a skimpy supply of both new and existing homes that has driven up prices about 40% the past five years, says Lawrence Yun, chief economist of the National Association of Realtors. Rising prices are good for homeowners but shut out many buyers, especially Millennials shopping for their first house.

But while experts have long suspected that regulations were a deterrent for builders, new studies show more starkly that areas with the most rules — particularly big metro regions on the East and West coasts — have the least housing construction. Some of the regulations aim to make homes safer or help neighborhoods deal with heavier rainfall and congestion. But one side-effect is that fewer homes are affordable in coastal areas with many rules.

A report by the National Association of Home Builders last year found that from 2011 to 2016, regulatory costs to build an average house had increased from about $65,000 to $85,000, or 30%, and continue to make up a quarter of the price of a home.