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Why aren’t contractors building more starter homes? Excessive fees imposed by state and local politicians

Last week, noting how “The average single-family home in the Twin Cities will cost you $294,000 on average, a record high and 6-percent increase over June of 2018”, Kare 11 looked at ‘Why contractors aren’t building more starter homes‘. They came to the same conclusion as we have: excessive fees and regulations make Twin Cities housing expensive.

As Kare 11 report,

A recent conversation in the newsroom spawned the question: With demand so high for homes in the $150,000 – $250,000 price range, why don’t contractors just build more?

“I’d love to,” said Tony Wiener, vice president of Cardinal Home Builders. “It’s not possible.”

Wiener said he gets a call or email once a week asking for a new two-story house in the starter home price range. But he said the math makes it impossible for a number of reasons, and construction costs or profit are not foremost among them.

“One third of the total package price, with the land, is in the regulatory costs. Your wetland fees, your park dedication fees, your permit costs,” Wiener explains.

Here’s an example. Housing First Minnesota partnered up for a study about this topic and broke down the estimated cost of a new house in Corcoran, Minnesota. The estimated construction cost is $182,000. The administrative costs that go into it were estimated at $56,000. The total cost of the home came in at $372,000.

The study estimated the exact same build in the community of Hudson, Wisconsin and the total price was $43,000 cheaper, with the savings split between land and administrative costs.

State and local governments have caused the shortage of affordable housing in the Twin Cities. Now, they are looking at policies such as subsidies and rent controls to solve the problem they created. The answer to a problem created by fees and regulations is not more fees and regulations.

John Phelan is an economist at the Center of the American Experiment. 

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