According to this comment over at Calculated Risk, they were charging $17,500 just for the permits to build a house out in an unnamed small city in California. If a new home sold for $200,000 the permit costs would still make up almost 10% of the cost. And that does not count the cost of the labor necessary to obtain those permits (I don’t mean building to code, I mean filling out all the paperwork). Nor does this count all the other tax’s that the builders pay, including a capital gains tax if applicable.

It must be admitted that most new houses in California sell for far more then $200,000. In fact, I would be surprised to hear of new house in California that did not sell for at least $400,000. So permit costs are a far smaller as percentage of total cost then the above example makes it seem.

But the fact that the government puts up such high barriers to entry means that you will never see a builder make a cheap house.