Is government keeping you from remodeling?

Despite stimulus programs and energy-efficiency tax credits, government taxes and regulations may be hampering the slow growth in remodeling and construction work.

Remodeling work is slowly picking up. A Hanley Wood report this week projects a 1-percent increase in remodeling during the second quarter - the first quarterly increase in two years. Construction work is also on the rise. However, we wonder if the increases might not be greater without new government regulations and taxes. Lead rules, stimulus restrictions and some state tax hikes hinder remodeling and construction.

Lead rules weigh down remodeling jobs

On April 22, the Environmental Protection Agency began requiring certification and strict new safety practices for remodeling work in homes built before 1978, the year lead paint was banned. The agency wants to protect residents, particularly children and pregnant women, from exposure to dangerous lead paint, which may be sanded, chipped or scraped off during remodeling.

Prosales and the National Lumber and Building Materials Dealers Association surveyed building materials dealers regarding the new rules. More than one quarter of the dealers said renovation companies have canceled jobs and supply orders because they don't have the certification to work in older homes. The EPA has certified far fewer companies than it said it would need to maintain previous levels of remodeling work.

Stimulus presents stumbling blocks

While the 2009 stimulus bill created new construction work - mainly on government projects - the work has been slow in starting, and is stymied by strict oversight and regulations. The bill allows inspectors general and the government accountability office greater auditing oversight of contractors and construction companies. The government can now interview any employee of such a company. Officials were previously limited to reviewing company records.

The stimulus bill sent $200 million to state agencies to conduct this oversight, and it will surely drive up construction costs as companies try to comply with expanded audits.

Other regulations are also hurting the construction and remodeling industry. Several states, including Illinois and New Jersey, enacted new laws in recent years regarding classification of construction employees. To try to capture more income tax money, the states are cracking down on construction jobs where independent subcontractors are not classified as employees of the hiring contractor.

Sales taxes on the rise

Finally, remodeling firms and DIY homeowners can expect to see ever-increasing costs for materials as states try to eliminate large budget deficits by increasing sales taxes.

We also reported last month on what amounts to a potential tax increase on construction and remodeling work in Pennsylvania. This week, Pennsylvania Gov. Edward Rendell officially urged the state legislature to remove a 74 tax exemptions for services, including exemptions for construction firms, architects and home inspectors.

While substantial state and federal tax incentives for energy-efficiency upgrades make some remodeling projects a pretty good deal, other government incentives, taxes and health regulations may be having unintended consequences in a struggling economy.

Posted by: Steve Graham