Home builders blame increased regulatory costs for new construction shortfall

Home builders confidence has reached its highest point in years, but in the most recent month new home building actually fell by 19 percent. This comes at a time when inventory supply is already extremely low, and many in the industry are calling for more new construction to alleviate the problem.

With such high demand and short supply, why is it that builders aren't stepping things up?

According to a report in CNBC, home builders blame new regulations from stepping up to fill the void. The new rules lead to more expenses, and builders could lose up to a quarter of the selling price of the homes they build. Moreover, a recent National Association of Realtors' study backs this up, finding that regulatory costs have risen by 29 percent in the last five years.

Another reason builders cite is labor shortages. Finally, they say the price of materials and land is rising, and there's a shortage of available lots in neighborhoods where people actually want to live.

These price constraints create an incentive for builders to construct fewer homes, because under such high demand, they can fetch higher prices for each home they do sell, CNBC reports.

For now, builders remain happy with the market outlook. The NAHB released a survey last week showing builder sentiment at its highest level in 11 years.

"Though this significant increase in builder confidence could be considered an outlier, the fact remains that the economic fundamentals continue to look good for housing," said NAHB Chief Economist Robert Dietz. "The rise... is consistent with recent gains for the stock market and consumer confidence. At the same time, builders remain sensitive to rising mortgage rates and continue to deal with shortages of lots and labor."