Building Science: Affordability Series Part #1

By David Mallay
Published Friday, April 24, 2026

How Building Codes Impact Construction Costs and Affordability 

When we talk about "affordable housing," the conversation usually starts with market prices and interest rates. But at the foundational level, affordability is driven by something much more technical. Changes to building codes can impact both construction costs and energy costs for residential construction. Accurate cost information is important for those considering proposed code changes, for jurisdictions deciding whether to adopt approved code changes, and for builders and homeowners concerned with affordability and cost-effective energy savings. Home Innovation’s Building Science services provide the research and analysis needed to navigate these decisions with confidence. 

An accurate cost analysis can be helpful to builders sorting through design options to develop affordable strategies for code compliance, or to show if a proposed energy code change is both energy efficient and cost effective, that is, whether the energy savings justify the added cost of construction.  

What Are Building Codes, and Why Do They Matter?

Building codes provide rules and standards for the design, construction, and performance of buildings. The primary purpose of building codes is to protect public health and safety in the construction and occupancy of buildings. Building codes provide builders with a clear path to consistently achieve these objectives. Energy codes, a subset of building codes, set minimum energy efficiency requirements for building components such as insulation, windows, and lighting. Minimum efficiencies for HVAC equipment, water heaters and appliances are set by the federal government, but for recent energy codes, higher efficiency choices can be used for compliance. Building codes are adopted (or amended) and enforced by state and local governments and jurisdictions. Once adopted, compliance is mandatory in new buildings. Home Innovation offers code approval services to help manufacturers and builders navigate these regulatory requirements seamlessly.

Identifying Incremental Construction Costs due to Code Changes 

The most widely adopted building codes, known as "model codes" or "I-Codes," are updated through a consensus process which normally takes place every three years. During this cycle, proposed changes are supposed to include a cost-impact statement to show whether a change will increase, decrease, or not affect the cost of construction.

However, not all "costs" are about physical materials. Consider these factors:

• Administrative Costs: A change in sampling requirements for multifamily buildings (e.g., moving from testing 10% of units to 100%) can add significant actual cost without changing a single piece of hardware.
• Marginal Gains: Some changes, like the 2021 IECC’s increased ceiling insulation, were shown to be not cost-effective because the added cost provided very little energy benefit. As a result, these levels were rolled back in the 2024 IECC.
• Flexibility: While the 2024 IECC achieved additional energy savings, it offers builders more design options and flexibility to achieve compliance.

Cost Methodology

Home Innovation uses a mix of sources to develop the incremental construction costs of code changes:

• RSMeans Construction Cost Data, the most recognized industry standard for costing, for national average labor and material costs; for specific locations, national average costs can be modified by applying the appropriate location adjustment factor from RSMeans.
• National distributor websites for material costs and particularly for mechanical equipment costs where RSMeans does not provide the granularity to distinguish between different levels of efficiency rating 
• U.S. Department of Energy (DOE) and Environmental Protection Agency (EPA) particularly for window costs.

Costs are normally reported as cost to consumer (homeowner or building owner), also referred to as first cost or retail cost. Cost to consumer is calculated by applying a markup to builder cost to account for builder overhead and profit. This builder markup can vary, but we typically use a representative industry average of about 1.20 (20% markup which represents a 16.7% gross margin).

The cost to builder is the cost charged by the subcontractor. RSMeans provides this unit cost which includes materials, labor, equipment (if needed to install materials, i.e., not permanently installed equipment), subcontractor overhead (overhead burden is applied to labor cost), and subcontractor profit (10% markup applied to all subcontractor costs).

The subcontractor base labor rate includes fringe benefits such as vacation pay and employer-paid healthcare. The subcontractor overhead markup applied to the base labor rate (varies by trade but typically about 1.5 in RSMeans) accounts for workers’ compensation insurance, federal and state unemployment costs, social security taxes, insurance costs, and other subcontractor overhead costs.

Note that cost to consumer (versus builder cost) is the appropriate cost to evaluate cost effectiveness because the economic perspective is that of a homeowner, so then both energy costs and construction costs are representative of costs to the homeowner. This is consistent with DOE’s residential methodology for cost effectiveness that considers only direct costs, and savings, to the consumer.

Key Consideration: Design Variations, Climate Zones, and Construction Practices

Cost results can vary by builder, home design, and location. Home Innovation estimates the added construction costs and energy savings of code changes using energy modeling and a standard reference building with multiple configurations and in multiple locations; cost results are relative to a baseline reference building without changes. 

The reference building can be one of several single-family designs developed by Home Innovation, a builder’s design, or based on the single-family prototype building or a multifamily building created by the Pacific Northwest National Laboratory (PNNL) for DOE. 

Different configurations that affect costs include foundation type (slab-on-grade, crawlspace, basement), primary fuel for heating and hot water (e.g., natural gas, electric), and energy design parameters (e.g., specific versions of the IECC for prescriptive requirements, HVAC system efficiency, water heater efficiency). 

Representative locations for the analysis are normally selected cities in each IECC climate zone for national studies, or selected cities in a state or region for local studies.

Cost-Benefit Analysis

For code changes that are not related to energy, benefits may include a stronger, safer structure or added resilience. For energy code changes, which are primarily not safety related, the benefit is usually lower energy costs. As mentioned, energy code changes should be evaluated for cost effectiveness and how the energy savings impacts or justifies the added cost of construction. 

Home Innovation primarily uses the simple payback metric to evaluate cost effectiveness because that is what builders use. Simple payback is a straightforward metric that represents the number of years required for the energy savings to pay for the cost of energy measures; it is calculated by dividing added costs ($) by annual energy savings ($/year). 

Home Innovation can also evaluate cost effectiveness using Life Cycle Cost (LCC) or Net Present Value (NPV). These metrics sum the costs and benefits of changes over a fixed period, commonly 30 years, and take into account factors such as inflation, changing fuel prices, equipment replacement costs, and the time value of money.

Regardless of the method used, evaluations of cost effectiveness and affordability are only as good as the estimated costs. The value of any metric depends mostly on accurate construction costing and energy modeling. The metrics are inter-related results from one metric will generally not be improved by simply selecting another. So, even where accurate energy savings are used, if construction costs are not also accurate, then the calculated metric for cost-effectiveness may be of little value.  

Cost results can also be aggregated by reference building design, foundation type, fuel type, and housing starts using weighted averages from Home Innovation’s proprietary market construction data. This can be useful to summarize cost results nationally or within a specific state, climate zone, or region (i.e., boil down a set of costs to a single number).

Why Cost Construction Matters

Accurate costs are important for those considering proposed code changes, for jurisdictions deciding whether or not to adopt approved code changes, for those considering changes to above-code energy programs, and for builders and homeowners concerned with affordability and cost-effective energy savings. 

Home Innovation’s cost-impact studies for homes and multifamily buildings are robust and typically vetted by builders and the building industry for accuracy. Cost studies can be national in scope or focused on individual states or locations. While actual costs will vary by house size, design, and location, our analysis is transparent – we describe our methodology and assumptions, provide results for construction costs, modeled energy cost savings, and cost effectiveness, and show individual component cost details in the appendix of our reports so builders have discretion to adjust our costs as they see fit.

Frequently Asked Questions

How do building code changes affect the cost of a new home?

Every time a building or energy code is updated, builders may be required to use better insulation, more efficient windows, upgraded HVAC systems, or additional testing all of which add to the upfront cost of construction. These incremental costs are passed along to the homebuyer as part of the final purchase price. Home Innovation quantifies these cost impacts so builders and jurisdictions can evaluate whether the added expense is justified by the long-term energy savings and other benefits of code change delivery.

What is simple payback, and why does it matter for energy code compliance?

Simple payback is the number of years it takes for energy savings to pay back the added cost of a code-required upgrade. It is calculated by dividing the incremental construction cost by the annual energy cost savings. Builders prefer this metric because it is straightforward and easy to communicate to homebuyers. A shorter payback period means a code change is more cost-effective. Home Innovation uses simple payback alongside Life Cycle Cost and Net Present Value analysis to give a complete picture of cost-effectiveness for any proposed code change.

Does every state follow the same building and energy codes?

No. While model codes like the International Energy Conservation Code (IECC) and the International Residential Code (IRC) serve as national templates, each state and local jurisdiction decides independently whether and when to adopt them—and may amend the codes to reflect local climate, construction practices, or policy priorities. This means code requirements, and therefore construction costs, can vary significantly from one location to another. Home Innovation’s cost studies can be tailored to specific states, climate zones, or regions to reflect these local differences accurately. 

How does Home Innovation ensure its construction cost data is accurate?

Home Innovation draws on multiple industry-recognized sources—including RSMeans Construction Cost Data, national distributor pricing, DOE and EPA data, and direct input from builders—to develop reliable incremental cost estimates. Studies are typically vetted by builders and building industry stakeholders for real-world accuracy. The methodology is fully transparent: detailed component costs are provided in report appendices so builders can review assumptions and adjust for their specific market. Learn more about our approach through our customized cost studies.