Builders Warn Congress WOTUS Rule Will Raise Housing Costs

Congress today received a first-hand account of how the Biden administration’s new waters of the United States (WOTUS) rule is exacerbating the nation’s housing affordability crisis by making home building more inefficient and costly, while simultaneously failing to significantly improve the water quality of navigable waters since much of the rule improperly encompasses isolated and ephemeral water features.

Testifying on behalf of the National Association of Home Builders (NAHB) before the House Small Business Committee, Frank Murphy, chief operating officer at Wynne/Jackson, a small real estate development firm in Dallas, said the new WOTUS rule will needlessly raise housing costs for home builders and buyers.

“The rule’s continued reliance on the significant nexus text to assert federal control over otherwise isolated and ephemeral water features substantially delays the jurisdictional determination process by the U.S. Army Corps of Engineers and increases federal wetlands permitting requirements over private property,” said Murphy. “This convoluted regulatory process makes it more difficult for any business trying to comply, and it makes it much more difficult for my company to provide homes or apartments at a price point attainable for working families.”

The final rule’s regulatory definition businesses to pay these fees to hire consultants since the 2023 WOTUS rule relies heavily upon the overly complicated and convoluted significant nexus test.” for WOTUS includes the problematic significant nexus test to establish federal jurisdiction over minor waterbodies such as isolated wetlands, human-made ditches or features that contain water only in response to rainfall events. The test’s results are determined by a federal regulator who decides whether a specific feature, along with similarly situated waters in the region, has material influence on the chemical, physical or biological integrity of a traditional navigable water.

“NAHB members already report waiting a year or more for the U.S. Army Corps of Engineers to complete a jurisdictional determination as to whether areas under a property are regulated under federal statute,” said Murphy. “These lengthy and uncertain compliance costs are often incurred before home sales, meaning that builders and developers must essentially finance these additional carry costs until the property is sold. The WOTUS rule only adds to the headwinds that our industry faces.”

Murphy further noted the WOTUS rule has a disproportionate impact on small home building firms, which make up the vast majority of home builders nationwide.

“Small home builders often do not have environmental regulatory compliance staff and must hire outside consultants for help when complying with the Clean Water Act,” said Murphy. “These fees, which may cost tens of thousands of dollars, are passed down to home buyers and renters. The agencies are forcing small

And as the administration rushes headlong to implement this rule on March 20, Murphy pointed out to lawmakers how this action is especially shortsighted and a waste of federal resources, given that the Supreme Court’s upcoming ruling under Sackett v. EPA is squarely focused on the legality of the significant nexus test. “Congress should require the EPA and U.S. Army Corps of Engineers to delay implementation of the WOTUS rule until the Supreme Court issues a ruling in this case,” said Murphy.

He further stated that the WOTUS rule does not add new protections for our nation’s water resources; but it does raise housing costs by inappropriately shifting the jurisdictional authority of many drier-end features and non-navigable isolated wetlands, streams and drainage ditches to the federal government.

“I urge Congress to call on the agencies to scrap the 2023 WOTUS rule and develop a meaningful and balanced regulation that will truly protect our nation’s water resources and ensure that federal, state and local agencies cooperate and coordinate to streamline permitting requirements,” said Murphy.

New Home Sales Remain Relatively Flat in February

Higher mortgage rates and home prices, as well as increased construction costs contributed to lackluster new home sales in February, but signs point to improvement later in the year.

Sales of newly built, single-family homes in February increased 1.1% to a 640,000 seasonally adjusted annual rate from a downwardly revised reading in January, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. However, new home sales are down 19% compared to a year ago.

“Builders continue to face challenges in terms of higher interest rates, elevated construction costs and access to critical materials like electrical transformers,” said Alicia Huey, chairman of the National Association of Home Builders (NAHB) and a custom home builder and developer from Birmingham, Ala. “Nonetheless, the lack of existing home inventory means demand for new homes will rise as interest rates decline over the coming quarters.”

“The February new home sales data points to an increase for the monthly pace of single-family construction starts later in 2023 given a rise in builder sentiment and an increase for sales of homes not yet started construction,” said NAHB Chief Economist Robert Dietz. “However, concerns remain about the tightening of credit conditions for acquisition, development and construction loans for smaller builders due to recent stress for the banking system.”

A new home sale occurs when a sales contract is signed or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the February reading of 640,000 units is the number of homes that would sell if this pace continued for the next 12 months.

New single-family home inventory fell for the fifth straight month. The February reading indicated an 8.2 months’ supply at the current building pace. A measure near a 6 months’ supply is considered balanced. However, single-family resale home inventory stands at a reduced level of 2.5 months.

The median new home sale price rose in February to $438,200, up 2.5% compared to a year ago. Elevated costs of construction have contributed to a rise in home prices. A year ago, roughly 15% of new home sales were priced below $300,000, while that share is now just 10% of homes sold.

Regionally, on a year-to-date basis, new home sales fell in all regions, down 29.2% in the Northeast, 21.3% in the Midwest, 7.3% in the South and 40.6% in the West.

Existing Home Sales Surged in February

Abrief drop in mortgage rates and a pullback in home prices boosted existing home sales in February, according to the National Association of Realtors (NAR). The 30-year mortgage rates averaged less than 6.3% in February per Freddie Mac and the median sales price in February posted the first decline since February 2012. The monthly increase in sales ended a 12-month streak of declines.

Total existing home sales, including single-family homes, town- homes, condominiums and co-ops, rose 14.5% to a seasonally adjusted annual rate of 4.58 million in February, the largest monthly gain since July 2020. On a year-over-year basis, sales were still 22.6% lower than a year ago.

The first-time buyer share fell to 27% in February, down from 31% last month and 29% in February 2022. The weakening of the firsttime buyer share is a reminder of the pricing out the market has experienced. The February inventory level measure stayed at 0.98 million units but was up 0.85 million from a year ago.