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The Inside Outside Guys: The cost of housing

Ken Calverley and Chuck Breidenstein
Special to The Detroit News

It’s just dirt, right?

The pieces of earth we build homes on are often referred to as “dirt” when discussing the cost of housing, and dirt has become somewhat rare and expensive.

Our housing crisis is very real.

Bob Filka, CEO of the Home Builders Association of Michigan, quotes our state housing director in saying Michigan has a housing shortfall of 170,000 units, with only 15,000 single-family homes slated for completion this coming year.

One factor in the uptick of housing costs is the imposition of over-reaching health and safety codes, to the tune of over $30,000 per unit, according to Filka.

Another huge factor is the high cost of creating buildable lots.

The average cost of a building lot last year in the U.S. was nearly $115,000 for a 17,000-square-foot parcel, about four-tenths of an acre.

The cost of housing is tied to many factors, one of which is the marketplace: What can people afford and what will they pay?

Using the industry rule-of-thumb that pegs the cost of land at around 25% of the sale price, we arrive at an average cost to the buyer of around $460,000 for a new home with 2,560 square feet of living area.

While it can be argued that zoning laws go a long way toward protecting housing values, many believe they have overstepped the intent to become the nemesis of increased supply.

Keep in mind that when supply decreases, costs rise for existing stock.

Regulations have turned land development into a bigger crapshoot than a dice game in Las Vegas.

Land developers have to frontload tremendous cost for extended time periods as they wade through local requirements.

One small example of how these rules can affect cost is minimum lot sizes and dimensions. Developers have long argued for smaller lots to accommodate greater density and lower cost, but many jurisdictions have remained steadfast in requiring not only larger lots, but also land reserves upon which nothing will be built, floor area ratios that dictate larger footprints relative to the lot size, and on-site amenities that may include hiking paths, parks, boulevards and water features.

Some of the upfront costs include purchasing the land, engineering fees, permits, zoning compliance, impact fees, insurance, financing, construction and more.

Raw land costs have increased as the supply of desirable parcels with access to roads, services, utilities, schools, medical and more are dwindling.

Engineering fees can be huge as they include surveying, plat layout and design, land balancing calculations, utility placement, signage and many other items.

Permitting and zoning approval can become a practical nightmare as developers are held captive by jurisdictions that know the time cost of money and leverage as they try to get more amenities not only for the development, but sometimes for the jurisdiction itself when part of the approval may be contingent on a developer purchasing another parcel of land to deed back to the jurisdiction, for example.

Impact fees have become a sometimes-nebulous catch-all term for monies charged to developers that don’t really offset a cost benefit to home buyers. They may be described as compensation for the increased long-term effect of traffic on the roads, or the potential cost impact of more students in the local schools.

The cost of developing land for housing has gotten out of control.

Insurance, financing and the hard costs of moving earth, building roads, and installing utilities cannot be changed and are destined to pace inflation into the foreseeable future.

After all of this, we factor in the unknowns of the marketplace, from events like 9-11 to COVID that can literally stop the market in its tracks while development cost meters continue to tick.

These high costs all contribute to raising the price to buyers and limiting who can even afford to purchase a home. They have also led a few developers to partner with some of the players, sharing both the risk and potential reward.

The real and long-term solution lies in reducing regulatory costs, increasing allowable density and shortening the time frame needed to develop a parcel of raw land into buildable lots.

We cannot subsidize buyers. That does not work long term.

Some states are literally outlawing single family zoning in an effort to increase density, though such a requirement may actually work to preclude upper-end buyers from getting into the local market.

New and affordable housing should be seen by all as a need that communities must embrace and expedite.

And, keep in mind that housing, like food, is not a luxury, but a necessity supplied by professionals like you can find every day at .

For more advice, listen to the Inside Outside Guys every Saturday and Sunday on AM760-WJR from 10 a.m.-noon or contact us at insideoutsideguys.com.