Lowering building costs won’t make homes more affordable

Lowering the cost to build housing won’t make it more affordable. The only exceptions are: those building their own dwellings, nonprofits providing affordable housing or when a mechanism assures savings are passed on.

The cost of sale and rental housing is set by what people are willing and able to pay. Prices dropped during the recession and then went back up, with no correlation to fees. Consider two examples. Ms. A inherits a home, built before impact fees. Her cost is zero. She sells it for the market price. No savings are passed along. Mr. B builds a house, and, because of problems, spends twice what he’d planned. But he can’t sell it for more than what the market allows.

The market doesn’t care what the components of cost are. If interest rates, the price of lumber or impact fees increase, developers pay less for raw land in order to meet the market. But timing can be tricky. With market-set prices and cost components changing, lenders, builders and buyers all take risks that their timing will be off and they won’t realize the gains they expected. They may experience losses. And when they can pass costs on to taxpayers, they will.

This story was originally published February 27, 2016 at 8:58 PM with the headline "Lowering building costs won’t make homes more affordable."