Why Are New House Prices So High, How Are They Influenced by Government Regulations, and Can Prices Be Reduced?

CED-78-101: Published: May 11, 1978. Publicly Released: May 11, 1978.

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Some housing officials have suggested that the American dream of owning a house may be vanishing because the median selling price of houses in 1976 hit an alltime high of $44,300, and the average selling price by the end of 1976 reached $51,000. Increased costs associated with government regulations, materials, labor, financing, property taxes, and utilities have contributed to higher housing prices and a decline in housing affordability. Many young, middle-income, and first-time home buyers can no longer afford to buy an existing house.

Typical new houses today are 700 square feet larger than popular houses of the 1950's because of additional bedrooms, bathrooms, family rooms, and eating areas. Although a 1976 survey showed that potential new home buyers would be willing to accept smaller houses to reduce costs and many communities allowed smaller houses to be built, builders believed that there was little incentive to build small houses when they could sell all the larger ones they build. Other factors influencing rising prices are local government regulations controlling development of land and building code requirements. Many communities seem to have adopted strict land development requirements because no national standards exist for communities to use. Some builders do not use less expensive materials or methods because of personal preference, familiarity with a particular method or material, or consumer demand.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of Housing and Urban Development should: (1) initiate a research project to determine the types and sizes of less expensive new houses more median-income families can afford and would be willing to purchase; (2) develop alternate approaches to encourage the building of less expensive new houses through incentives such as tax credits or insuring loans; (3) perform a study to determine the impact that changes in the capital gains tax treatment of sale proceeds could have on encouraging the purchase of smaller, less expensive homes; (4) establish acceptable land development standards to use in mortgage insurance programs and encourage communities to use these standards; and (5) establish a program to systematically identify communities that do not allow the use of less expensive construction material and methods and provide them with technical data and assistance necessary to encourage the communities to use these items.

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