Just seven years ago, builder-developer Edward R. Carr of Northern Virginia built a house which sold for $40,950. Today the same house sells for $80,000. Actually, this house is selling for $74,823 becaused Carr had to drop the single carport and a fireplace from his design in June, 1975, in order to get the price under $80,000.
What happened to the cost of his house is pretty much what has happened to most new homes in any other part of the nation. The environmental cost has pushed the cost of land and ladn development so high that today the consumer pays $23,000 for the same lot that in 1969 cost $7,331 - three times as much.
"People just don't understand what is happening to costs," said Carr. "Seven years ago the share of the land cost was 18 per cent. Today it is close to 30 per cent."
What is left, of course, is less money for the house itself. Today Carr can allocate only 46 cents out of each dollar of the sales price to the house, or living space. Seven years ago he had 58 cents to build the house - bedrooms, baths, family room, carport, appliances, etc., all the sticks and stones, brick and mortar which goes inot living space.
What's 12 cents or 12 per cent? In the house Carr is now selling for $74,823 the different is $9,236. Or, put another way, if the structure would have remained at 58 per cent of the total sales price, the consumer would have gotten (in the house itself) $43,397 worth of living space.
But Carr and other builders have to pay for things which did not exist seven years ago. Therefore, the consumer gets only $34,161 worth of living space. That's $9,236 less.
What this mean is that he gets 330 square feet less than seven years ago. That's the equivalent of two complete rooms - one 14-by-14 feet another 12-by-11.
What brought this about?
Most of the local governments are facing fiscal problems. They used to solve this problem by asking the state or federal governments to pay. If this did not work, they had to increase local taxes, mostly property taxes. An unpopular decision.
An easier way is to collect revenues up front, before development starts. "It used to cost $1,530 for water and sewer fees for one house in 1972 in Fairfax County," said Edward Cook of the Northern Virginia Home Builders. "Now the fees are $2,605.
"There have been a number of substantial increases in water and sewer connection charges during the past few years," said Michael DeChant of the Suburban Maryland Home Builders Association. "The hew home buyer is subsidizing the higher cost of connections to serve failing septic systems - one more factor contributing to the escalation of building costs."
Environmental costs (such as the prohibition of open burning, storm water retention, silt controls, etc.) add to the costs. in a study of land development cost done by Oyster, Imus & Associates in the Rockville area, direct cost attributable to these items comes to $2,227 per lot. Of this cost, some of the major items included are:
No burning $408
Storm water retention $755
Increased pipe size $406
Bonding increase $105
Inspection fee increase $60
Engineering attributable to storm water management $75
The above cost does not include the increased cost of over-design of development standards to comply with the new regulations. It does not include such items as curbs, gutters, paving width, increases in inlets, manholes, and other things required to "protect the environment."
Environmental delays in construction are another factor in driving up costs.
"It generally took less than nine months to get a subdivision approved and started," said Carr. "Now it takes two or three times as long." Cost of delays has been estimated at between $10-18 per day per lot. Even at $10, a year's delay means $3,650. This cost is reflected in "overhead."
Area sewer moratoriums put a premium on available lots - with sewers. In the early 1970s a typical quarter-acre lot north of Bethesda sold for $10,000 to $12,000. Today, if you can find such a lot, it might bring $40,000 to $60,000.
For potential customers higher prices mean higher down payments, higher monthly payments and a higher share of disposable income for housing.
Increase in home prices mean increases in property taxes. So when a house down the street sells for double what was paid for it, don't laugh. Cry! The tax assessor will be around soon.
Some people are stuck in their present homes. Even if they sell, they probably cannot afford wht they would like to live in. Some people, because of cost increases, could not afford to buy the homes in which they now live.
Renters pay too. Property taxes go up and these increases are passed on to renters. The requirement of a high rent structure diminishes the appetite of investors who might be interested in new apartment building and creates a better climate for conversion to condos.
The sale of more expensive houses means paying more transfer taxes to the state or county. Again higher selling costs, diminishing the "take" for the average person who wants to buy a new house.
The consumer is being asked to pay in yet another way. National expenditures to satisfy regulatory standards in the area of environmental, health and safety regulations now exceed 2 per cent of the gross national product - nearly $40 billion per year. This is as much as we spend in a year to build all single family housing units - nearly 1.3 million new houses. For the 10 years between 1975 and 1984, it is estimated that costs of compliance in this area will cost us over $500 billion.
This estimate, according to Secretary of Commerce Elliot L. Richardson, does not include "cost of forthcoming regulations - Clean Air Act amendments, toxic substance controls, coke oven standards, the OSHA standard completion project, etc."
In the name of enviornmental protection and consumerism, the consumer is paying exorbitant prices. The consumer should be outraged. Instead, he look for someone to blame - usually the builder or developer. The sad truth is that the builder is also a victim of the "system."
The writer, chief economist of the National Association of Home Builders, is a home owner in this area.