Cracking the Code on High Rents
While zoning and permitting delays get much of the blame for high housing costs, building codes are an oft-overlooked contributor. These codes set minimum construction standards, such as for structural and electrical safety, and fire protection. And most U.S. apartment codes trace back to one document, the International Building Code, which is revised every three years and adopted into state law – but with little formal cost analysis. Very little research has measured how changing code requirements impact housing costs.
A new working paper is the first to put a real number on that cost. In “The Effect of 2012-2021 Building Code Revisions on Break-Even Rents of 3-Story Apartments,” researchers Michael D. Eriksen, Deniz Besiktepe, and Claudio Martani cataloged 130 significant code revisions adopted from 2012 to 202, and found most were cost-neutral. However, 16 revisions raised construction costs for a typical low-rise apartment building.
Key Takeaways:
- Costs Rose: Of 130 significant revisions, 16 code revisions raised average apartment construction costs by 9.9 percent, pushing break-even rents (the minimum that can be charged for a home to justify building it) up 8.4 percent nationally.
- One Rule Dominates: Fire-related rules drove 67 percent of that cost. The costliest, $183,200, funds a fire watch during the construction phase, a temporary measure with no direct safety benefit to future residents.
- Not Felt Equally: The added rent burden is largest, as a share of income, in cities with cheaper land and lower renter incomes: 5.86 percent in Charleston, WV, versus 2.28 percent in Washington, D.C.
The researchers started with a baseline: a 30-unit garden-style building, the dominant form of new low-rise rental construction, and priced out its 49 key components across the largest city in each state. Using that prototype, they tracked how each building code update from 2012 to 2021 changed those costs relative to the 2009 baseline, then combined the results with local land values and capitalization rates to calculate the impact on break-even rents in each market. To isolate the effect of the codes themselves—not inflation or changing labor markets—they held prices and labor productivity constant at 2024 levels throughout.
Here’s what their analysis revealed:
Code revisions raised break-even rents nationally. Sixteen code revisions adopted between 2012 and 2021 raised costs by 9.9 percent, or about $393,645, to build a standard 3-story apartment complex. Because developers price new homes to cover their costs, that flows into break-even rent — pushing rent up 8.4 percent nationally, or $156/month for a two-bedroom. This is an upper-bound estimate: it assumes developers or landowners absorb none of the cost and pass the full amount to renters.
Costliest rule protects the building, not residents. Fire-related rules make up 9 of the 16 cost-increasing revisions but 67 percent of the dollar impact. However, the paper doesn’t weigh these costs against the safety benefits the rules were designed to produce. Nonetheless, the single biggest item is a $183,200 requirement for a paid fire watch during construction. This is a temporary, build-phase measure, not protection for future occupants.
Renters in lower-income markets bear a bigger burden. Construction cost increases vary by city, from about $10 to $15 per square foot depending on local labor and material costs, but that variation is small compared with differences in renter incomes across cities. As a result, the added rent consumes a far larger share of income where renters earn less: 5.86 percent of median renter income in Charleston, WV, versus just 2.28 percent in Washington, DC. A nationally uniform code hits renters hardest in lower-income markets.
The authors frame the paper as a first step for future research. They note revisions are often adopted without formal cost evaluation, and flag one distinction: costs like the fire watch and roofing underlayment address construction-phase concerns, not occupant safety, unlike fire suppression rules. Their study also doesn’t measure the benefit side or how much of these costs actually reach renters versus landowners.
Unexamined building code revisions can impose hidden costs that inflate monthly rents. Whether that tradeoff is worth it remains an open question.
Photo by Markus Winkler