Environment regulations don't drive up home prices

Contrary to many opinions, the influence of environmental regulations on prices of new housing is only negligible.

provided by Cornell University

ontrary to popular belief, buyers of new homes should know that the costs of supporting environmental protection don't boost the prices of new houses, a Cornell University housing expert concludes. Higher prices seem to be much more likely the result of larger homes and more amenities.

The average cost of a new home in the United States shot up 32 percent in the past decade, and some people blame much of this increase on environmental regulations. But a new Cornell study finds no empirical evidence to support these claims.

"We find that the costs of complying with the regulations have only a negligible impact on the average price of a new house," says Joseph Laquatra, associate professor of design and environmental analysis at Cornell. "Rather, we conclude from strong evidence that higher prices are much more likely the result of building bigger homes with more amenities."

Builders and developers must comply with federal regulations that include the Clean Water Act, Federal Water Pollution Control Act and the Endangered Species Act. They and others have long assumed that these environmental regulations, which seek to improve air and water quality and protect biodiversity, have thwarted development and driven the costs of new homes beyond what first-time buyers can afford.

"While the goals of most protection programs enjoy broad support, the implementation of these initiatives is all too often unduly cumbersome," said H. Daniel Pincus, the 1997 president of the National Association of Home Builders, in the NAHB publication Building the American Dream. "Unnecessary and redundant regulations add more than 20 percent to the cost of building a home in many areas," he said.

"There are certainly anecdotal horror stories in which environmental protection has been used to stop particular developments," says Laquatra. "But we couldn't find evidence in the numerous studies on this issue that demonstrate a direct relationship between environmental regulations and house prices."

Laquatra and independent scholar Gregory Potter conducted a comprehensive review of more than 100 studies that looked at housing affordability and environmental regulations; they also analyzed transcripts from two focus groups Laquatra conducted in Seattle and in Gainesville, FL. Their report was published in the (April) Earth Day 2000 issue of the Electronic Green Journal (Issue 12).

In the focus groups, Laquatra moderated discussions about loss of species, housing affordability, equity, property rights, regulatory burdens and similar issues with builders, developers, environmental regulators, affordable-housing and environmental advocates, congressional staffers, students of construction management and faculty in academic construction-management programs.

"Interestingly, housing affordability was not a primary concern in the focus groups. And in the literature review, we found no evidence that higher housing prices are due to the costs of complying with environmental regulations. Rather, strong evidence points to a drop in home ownership rates during the 1980s being due to changes in tastes and lifestyles and not economic hardship," says Laquatra.

Home ownership, which is now at the highest rate in US history, includes almost 68 percent of American households. Yet the median price of a typical new home tripled between 1977 and 1997. In 1989, for example, the average price of a new home was 148,800. By 1999, it was $195,700.

"We also found evidence that the public is overwhelmingly in favor of environmental protection and thinks the government should be spending even more on protecting the environment," Laquatra says. "Although builders may incur some costs in complying with the codes, on a national basis these costs do not significantly affect the cost of a new house."

In related work, Laquatra is now leading a study funded by the Cornell Community and Rural Development Institute on "Building a Balance: Housing Affordability, Environmental Protection, and Smart Land Use Decisions." In collaboration with faculty from Cornell's College of Agriculture and Life Sciences, Laquatra is conducting focus groups in four communities across New York state to find out how the communities feel about growth issues.

For information on Joe Laquatra, please see http://DEA.human.cornell.edu/DEA/Laquatra.html. For a copy of the fact sheet Building A Balance: Housing Affordability and Environmental Protection, please see http://www.nahb.com/hot_topics/balance_1.htm