HUD's new energy efficiency mandates could increase new home construction costs by up to $31,000.
In a recent announcement, the Department of Housing and Urban Development (HUD) has revealed that it will be implementing new energy standards for homes insured by the Federal Housing Administration (FHA). These changes, which align with the 2021 International Energy Conservation Code, are expected to significantly raise the cost of home construction.
The new HUD mandate, announced last Thursday, will require that new homes financed or insured by its programs adhere to the latest energy conservation standards. The National Association of Home Builders has estimated that the new energy rules could add up to $31,000 to the price of constructing a new home. Moreover, the payback period through energy savings for homeowners could take as long as 90 years.
Despite the anticipated increase in construction costs, HUD claims that builders may be able to offset some of these expenses through various tax incentives and rebates provided by the Inflation Reduction Act. These include a $5,000 per unit tax credit for multifamily construction that meets certain energy and wage standards, as well as potential benefits from EPA Greenhouse Gas Reduction Fund programs like the Solar for All initiative, and a significant investment tax credit for solar projects.
Nevertheless, even with subsidies in play, HUD estimates new home prices may still rise by an average of $7,229. The requirement to pay prevailing union wages to qualify for certain credits has sparked concerns over how much these additional labor costs will contribute to overall construction expenses.
These changes also coincide with a period of increasing financial pressure on potential homebuyers. Data from the St. Louis Fed indicates that home prices have reached a new record high, while the 30-year mortgage rate has climbed to 7.50 percent.
The potential impact of rising housing costs is not only a matter of personal finance but also carries political implications. With rent being a top concern among young voters, some analysts suggest that the housing affordability crisis could significantly influence the 2024 presidential election. In light of recent inflation and dissatisfaction with the current administration, there is speculation that the shifting concerns of these voters may affect their support in the upcoming election.
