Baton Rouge Home Costs Hit 31% Increase

Homes in Baton Rouge cost 31% more than they did during the pandemic, a National Association of Home Builders economist stated Wednesday. Danushka Nanayakkara-Skillington, the group's assistant vice president of forecasting and analysis, presented the data to the Home Builders Association of Greater Baton Rouge. She identified regulatory charges as a primary driver of the price increase, rather than interest rates or general inflation alone.

NAHB data indicates that regulatory costs average $132,000 per new home construction. This amount represents roughly a quarter of the total cost of a new residence. These fees are 40% higher than the average regulatory costs recorded five years ago. The largest component is changes to building codes, which add about $40,000 to the price. Builders also pay approximately $20,000 in fees after purchasing land, and another $7,000 for zoning approval.

"It's almost impossible to build at those levels when the regulation cost alone is about $132,000," Nanayakkara-Skillington said. She noted that broader economic conditions remain uncertain. The war in Iran has raised the price of gasoline and fertilizer, while economic growth is concentrated in data centers and artificial intelligence. Consumer spending is driven largely by the top 20% of earners, creating a difficult environment for buying and building homes.

The association forecasts that single-family home building will decline by 4% by the end of the year. No increase is expected for the next two years. Nanayakkara-Skillington stated that a 1.5 million housing unit deficit exists. Closing this gap requires constructing more than 1.1 million homes annually. Mortgage rates rose above 7% last month. She expects rates to settle near 6%, far above the 2% to 3% levels seen during the pandemic.

Demand remains steady, particularly from millennials, even as national population growth slows. Louisiana and East Baton Rouge Parish have experienced population increases. Struggles in the single-family sector have shifted activity toward townhouses and multifamily housing. Residential remodeling is expected to be the best-performing sector, driven by homeowners choosing to age in place or upgrade rather than move.

Labor shortages are compounding the financial pressures. Residential construction lost 50,000 workers in the past year, while non-residential projects added 100,000. Scott Bardwell, owner of Bardwell Homes, described local demand as moderate. He said most recent sales resulted from people moving into the area or major life events such as death or divorce. He anticipates fewer builders in the future due to industry consolidation and the retirement of baby boomers.

"I would rather be in Baton Rouge than almost any city in the country because we do have jobs. We are growing. Our housing stock is aging. People want new houses," Bardwell said. Matt Holmes, general manager of Holmes Building Materials, noted that lumber costs have not significantly impacted building expenses. However, manufactured home building materials are contributing to unaffordability. He expressed hope based on local population growth but warned that inventory for speculative homes needs to increase.