Building homes comes with a unique frustration. Even when you price a project carefully, the numbers can shift before work begins. Often, this change stems from factors beyond your reach. The National Association of Home Builders reports that government regulation now adds more than $131,000 to the cost of a typical new home. At the same time, the Associated General Contractors of America notes that tariffs on imported steel, aluminum, and copper have increased some material costs by a third within the past year. Add to this a nationwide skilled labor shortage that leaves positions open across the country, and the pressure builds from every direction. These challenges are not just theoretical. They appear in your bids, your schedules, and your margins.
At MBE CPAs, I see this frustration firsthand as we work with builders, developers, and contractors every day. You bring skill and attention to every project, but forces outside your business keep eroding your bottom line. Identifying what drives these costs is the first step. Knowing how to address them when tax season arrives is where we can help.
How Do Regulations Affect New Home Prices?
Building codes, zoning approvals, permitting fees, environmental reviews, and land use requirements all attach a price tag to a project, and that price tag has grown substantially in a short period. Some of these costs show up right away, such as permit fees. Others hide inside longer timelines, added design requirements, and delays that quietly work through a schedule and a budget.
Of the total regulatory cost per home, roughly $47,000 is attributable to land development, tied to lot approvals and infrastructure requirements. The rest is added once construction begins, through permitting, plan review, and code compliance. Building code changes alone account for more than $40,000 of that total, the largest single line item in the study.
What Makes Regulatory Costs a Hidden Tax?
What makes this cost different from a typical tax is that it never appears as its own line item. Sales tax, for example, is calculated at a clear rate and shows up plainly on an invoice. Regulatory costs don’t work that way. They get absorbed into the lot’s purchase price, folded into permit fees, and built into the labor and building supplies needed to meet code. Because these expenses are often embedded in project and operating costs, many are capitalized into land, land improvements, inventory, or depreciable property basis rather than appearing as a separate line-item tax or fee, meaning neither the builder bidding the job nor the buyer signing at closing ever sees the exact price of compliance. For a business real estate build, that depreciable basis typically recovers over 27.5 years for residential property or 39 years for commercial property, depending on the type of build.
Why Are Construction Costs Increasing So Rapidly?
Building codes have grown stricter around energy efficiency and resilience standards. Permitting agencies have taken longer to review applications as staffing hasn’t kept pace with application volume. Environmental review requirements have expanded in many jurisdictions. None of these changes happened in isolation, but together they explain much of the increase.
For builders, this means the cost of doing business keeps climbing even when the project’s scope hasn’t changed. For buyers, it means a larger share of the sale price goes toward compliance rather than square footage.
What Additional Challenges Do Builders Face?
Regulation is only part of the picture. Builders across the country are managing several cost pressures at once, including:
- Tariffs on imports: Managing metal tariffs of up to 50 percent on imported steel, aluminum, and copper.
- Labor shortages: Competing for workers in an industry shortage by hundreds of thousands of skilled tradespeople, including electricians, plumbers, and carpenters.
- Financing rates: Carrying construction loans and financing costs that remain elevated.
- Land availability: Working with a shrinking supply of buildable, ready-to-develop lots.
Layer these pressures on top of one another, and it becomes clear why so many builders feel as though they’re working harder just to stay in the same place.
How Can Builders Mitigate Rising Construction Costs?
Here’s the encouraging part. Regulation, tariffs, and labor costs sit largely outside your control, but how you approach your business finances around them doesn’t have to. Tariffs on imported materials may increase inventory or project costs and, depending on the facts, may be deducted or capitalized under the applicable tax accounting rules. Costs tied to compliance, material tariffs, and labor deserve a closer look during your annual tax planning. Tax provisions such as Section 179 expensing, the Qualified Business Income deduction for eligible noncorporate taxpayers, bonus depreciation, cost segregation studies, 1031 exchanges, Real Estate Professional Status, R&D credits, and qualified opportunity zone investments each carry distinct eligibility rules, and the taxpayer’s entity structure may affect how some of those benefits are claimed.
Expenditures tied to construction, land development, and equipment purchases require careful job costing and tracking. Detailed job costing is critical for tracking project costs, and where the business owns depreciable real property, a cost segregation study may help identify assets with shorter recovery periods. The construction industry carries specific rules around revenue recognition, such as percentage of completion versus completed contract accounting, along with inventory capitalization, and entity structure, and those rules directly impact how a business reports its annual figures. Reviewing these tax positions gives a builder a clearer framework for evaluation rather than simply absorbing rising costs and hoping margins hold.
What Steps Help Builders Protect Margins Today?
A few habits help track numbers and keep your documentation organized:
- Analyze project numbers: Review job costing regularly to see where regulatory and material costs land on each project, which also supports more accurate construction forecasting.
- Verify business setup: Revisit the entity structure to confirm it still aligns with the business’s ownership, liability, compensation, and tax-reporting objectives.
- Log compliance expenses: Track and categorize all expenditures tied to permitting, land development, and code compliance throughout the year so they can be properly capitalized, recovered, or deducted under the applicable rules.
- Form industry connections: Build relationships with building material suppliers and lenders who understand the construction industry.
Small, consistent steps add up, and they give a builder a clearer picture of where things stand well before filing season arrives.
How Does MBE Support Builders Facing Rising Costs?
Builders carry a lot on their shoulders. You’re managing crews, suppliers, buyers, and now regulatory updates that keep adding new layers of cost. Our team at MBE CPAs believes no one should have to sort through all of that alone. We work with construction clients to look closely at where money is going, find planning opportunities that fit the way you build, and support you as your business grows year after year.
You bring the skill and the drive. We bring the professional familiarity with construction tax rules to help you evaluate your corporate structure and look for available deductions. If rising costs have you rethinking how your business is structured or planning for the year ahead, our team at MBE CPAs is ready to sit down with you and talk through what makes sense for your business.