11 ms·

How much do construction costs matter to the price of housing?

197 points by ddubski 5y ago

abdel_nasser 5y ago
im building a house and i got a bid from a foundation guy. he wanted 40k for a job that costs 10k in material. and i can easily do it myself. once i finish the house i will be able to offer a full breakdown of just how much you can save by doing it yourself.
IMAYousaf 5y ago
I like the name construction physics. There's a lot of value to be unlocked throughout the whole construction process by figuring out where the inefficiencies are particularly in financing IMO. There's this company called Shepherd or something like that that does build insurance and it's a fantastic example of how to make something meaningful.
TheChaplain 5y ago
Prices on housing will not go down as long as people have access to money IMHO, and plenty are willing to pay up if it means 30-45 min less commute to work.
- Scoundreller 5y ago
  If non-gov investors had to provide the mortgages instead of the fed, that access to money would dry up.
  - deleted 5y ago
    [deleted]
arcticbull 5y ago
It's a question of supply and demand. In areas with high supply or low demand, the price of housing approaches the cost of construction. In places with punitive zoning rules that forbid new construction, limiting supply, and have high demand (I'm looking at you, San Francisco) the price of housing dramatically exceeds the cost of construction.
- actuator 5y ago
  London doesn't have this problem if I am not mistaken. But housing is very very expensive still. So much that a 3 bedroom 120sqm apartment can be more than 6 million dollars even outside Central London depending on the area.
  - buscoquadnary 5y ago
    From everything I've heard London has some of most restrictive, bureaucracy laden, red tape filled city building processes out there. I've heard that all of England has "councils" at the local level that basically operate as HOAs with the full force of the law. I don't know that I'd pick anywhere in the UK as a shining example of ease of building.
    - actuator 5y ago
      But then councils can compete with each other, the ones outside even do so. There are tons of high rises coming far from Central London but still reasonable commute to center, but that doesn't necessarily reduce the price of properties inside. Area has a lot to do with prices and unless these outer areas become self sufficient so much that Central London or rich boroughs lose lustre, the inner areas will command a high price.
      - iso1631 5y ago
        While demand outstrips supply as now, prices increase. These have a ceiling of the maximum people can afford. If everyone is given a £10k payrise, then rents will increase by £10k, and buying will increase by whatever an extra £10k a year will get you on the mortgage. Until supply increases enough so that demand is no longer artificially constrained that will be the case. Now there are places where supply is higher than demand, like inner cities in places like Stoke, and prices there are low enough that even a single earner on minimum wage with 6 months salary as a deposit can afford a 2 bed house [0] [0] https://www.rightmove.co.uk/house-prices/detailMatching.html?prop=114196907&sale=14460331&country=england https://www.rightmove.co.uk/house-prices/detailMatching.html...
rabuse 5y ago
Almost nothing, especially with the cheap materials used in current modern construction (unless requiring some hurricane code; ex. South Florida). It's all due to zoning limitations, and homeowners voting in their own interests to keep the supply down, and values to rise.
- loeg 5y ago
  The rebuild cost, as estimated by my insurance company, is more than half the total value of my house. And I live in Seattle, where land is relatively expensive. Construction cost is not "almost nothing" by any means.
  - mpalczewski 5y ago
    A not insubstantial cost of that rebuild is permitting.
  - sudosysgen 5y ago
    Doesn't that include the cost of demolition? Demolition done right is very expensive.
    - loeg 5y ago
      In a city, most construction is going to involve demolishing the previous structure. So you could argue there isn't much value in pricing construction sans the cost of demolition.
      - sudosysgen 5y ago
        Well no, because the cost of demolition is the same no matter what you build, right?
  - mrep 5y ago
    Also, land is not scarce in the south and midwest which is we haven't really seen a rise in price per square foot in 40 years [0] as it is basically all construction costs as you can build a new home in a new suburb at the edge of the city. [0]: https://www.supermoney.com/inflation-adjusted-home-prices/ https://www.supermoney.com/inflation-adjusted-home-prices/
Mountain_Skies 5y ago
Thought for conversation: if you are able to work remote but still live in or near a major employment center, are you at least somewhat morally responsible for pricing out those who cannot work remote?
- francisofascii 5y ago
  If you are judging morality based on, taking more than what you need or deserve, or squandering a gift, then maybe. But that would be a high bar. How much space you take up and how you interact in your neighborhood would factor in much more than your presence. For example, if you lived in the slums of the city, but was a net positive for the community and caused some gentrification, that certainly should not count against you. How about people who can walk to mass transit but don't use it? That would be similar.
- giantg2 5y ago
  Not sure why you are being down voted. This seems like a legitimate question that I would like to see the opposite side of. For example, if I was permanently remote, I would like to move to a cheaper area. I can't because my wife doesn't want to leave the current county (because "It's the best county in the world"). Although I'm also not in a heavily populated area, more so on the edge of being rural.
  - Mountain_Skies 5y ago
    Perhaps if I used the word 'ethically' rather than 'morally' there would have been less of an emotional reaction to the question.
    - giantg2 5y ago
      I do agree it could be worded better. I kind of doubt a single word would change the tone that significantly (given that many people don't know the difference).
  - lastofthemojito 5y ago
    > I can't because my wife doesn't want to leave the current county (because "It's the best county in the world") For some reason that comment really piqued my curiosity. Obviously lots of us might choose different areas for various reasons (schools, weather, scenery, politics, recreational opportunities, cultural sites, etc). But to make a declaration of world's best must mean a lot of confidence in the greatness of one's county! It also reminds me how little I identify with the county I live in, perhaps because I've lived in a few, and perhaps because I currently live almost directly on a county border and can see the neighboring county from my back windows. Still, I'm curious what about your home county makes your wife so enthusiastic about it compared to well, everywhere else?
giantg2 5y ago
It's all about consumer preference. It seems this article largely misses this. People want to live in specific locations, or have to in order to find work. This drives land values up as demand increases. Policies can make this worse, but the problem will still manifest itself to some degree. (Potentially as affluent people, especially in suburban areas, buying up more land to create setbacks, or simply buying because they can afford it now, or HOAs setting limits, none of which help density, demand, and cost). "reduce the costs of construction, particularly residential construction (ie: housing)" Changing preferences are the best way to address this, yet is likely the most difficult to sucessfully influence. Houses being built today are mostly larger homes, and definitely much larger than the majority homes built generations ago. This means more materials, more labor, more regulation, etc. Now we might be using cheaper materials, or less per sqft, or using tools that increase speed of laborers. But I think this is mostly canceled out by just increasing the size of the house (ie we're growing into our fish bowl). For a personal example, my wife complains that an 1800 sqft house is too small.
- bobthepanda 5y ago
  So yes and no. One important factor to increasing house size is that localities in the US tend to have fairly large lot sizes. To recoup the cost of building on more expensive land, builders build more house, because the opposite (building 2 or more houses and subdividing the land) is just illegal.
- com2kid 5y ago
  > For a personal example, my wife complains that an 1800 sqft house is too small. A modern blueprint 1800sqft house, yeah, for sure. But somehow a 1960s split level at 1800sqft is spacious. We are throwing square footage away on multiple large bathrooms, 2 living rooms, 2 dining rooms, and then wonder why the rooms we actually occupy are so small. The recent trend towards 4 story narrow houses doesn't help. A literal 1/3rd of the house is taken up by stairs! I'm in a 2300sqft house that has 4 bedrooms and 3 bathrooms and an office. There is still a bit of wasted space, but not much! Meanwhile, I've seen new houses, 3000sqft, 3 bedrooms, 4 bathrooms, 1.5 million. "Oh you want 4 bedrooms? Those start at 1.7 million" <-- Said by an actual house developer
aurizon 5y ago
Low rates have created a mechanism where large amounts of housing are built by corporations and entrepreneurs for rent. Most of them borrowed market funds at 1% or even less, often on 100% credit, or ~~2-3% or less mortgages and built condos, houses and apartments. There was such a shortage that this drove up prices - yet since people needed a roof overhead, they were forced to pay 40-50% of household income for rent. Managed in bulk by management companies these costs were low and yields of 5-15% were achieved. In addition, many were rented as AirBNB's in low vacancy areas earning 50%, but seasonable. This is the cause - what is the cure? Home inflation and the Covid stimulus has ramped up inflation. The usual remedy for this is rates hike, but they are afraid that this will create a huge underwater home effect. Once this starts it can become a race to the bottom. Corporations will write off their equity losses, owners will get friend like bacon - they inch them up. The call it Scylla and Charybdis - between two evils, as they sit, the bacon piles up... https://en.wikipedia.org/wiki/Between_Scylla_and_Charybdis https://en.wikipedia.org/wiki/Between_Scylla_and_Charybdis
- zdragnar 5y ago
  National company built subdivisions like you mention (often 80-200 homes each, all cookie cutter mini mcmansions) are popping up where I live, but there isn't a shortage of other options. People arent moving there "just to put a roof over their heads" as if it were a choice of last resort. People are moving into them because they want to. Lower crime than the city, less lawn to maintain than the country, plenty of room indoors for the whole family during bad weather, looks posh (even if any craftsman would scoff at the crap construction). I wouldn't ever buy one myself, but some people wouldn't have it any other way.
  - aurizon 5y ago
    Yes, house construction methods need to get modern. Most construction automation is labor savers, drill, nailers, gluers, foam extruded baseboards - but, people HAVE to have a place to live. The move to online work has helped many.
VikingCoder 5y ago
Going off on a tangent here: There's a sci-fi novel I want to write some time... You know how some countries have mandatory military service? Well, what if all of the "Essential" jobs, all had mandatory service? I want to do my own cherry-picking, selecting the "Essential" jobs, and especially those that are toilsome but that you can do with not a lot of training, and then do the math to see how many hours each able-bodied person in a country would need to do each job, in order to satisfy all of the needs of everyone in that society (able-bodied, or not.) And then build up a story around some people who are finishing their Essential Jobs, and are deciding whether to Retire into living off the dole, or whether to transition into some Skilled labor to live in more luxury. And then there's the fact that automation is making it so that less and less actual manual effort is required for the Essential jobs. So, does the society start categorizing new jobs as Essential, or do people end up with more discretionary time? I feel like this would have made a pretty okay Star Trek culture to encounter...
- kiliantics 5y ago
  Check out "The Dispossessed" by Ursula Le Guin
- aaron695 5y ago
- Hemospectrum 5y ago
  You could approach this idea from the opposite direction: Put all essential jobs under military jurisdiction. There's real-world precedent illustrating some of the ways this would (and wouldn't) work.
  - someguydave 5y ago
    >Put all essential jobs under military jurisdiction. Under that scenario the relative fairness of paying for jobs to be done would be replaced with the relative unfairness of being friends with the right people in the "plumber corps" to fix your toliet.
orev 5y ago
The price (of anything) is determined by one thing alone: how much someone is willing to pay for it. That’s it. The cost of building is not relevant in any way to that. Nicer materials, better design, etc. can make people willing to pay more, but if it’s too much they won’t pay. The only one who the cost of materials matters to is the builder. If it costs them more to build than they can sell it for (within whatever % profit margin they want), then they simply won’t build it.
- sbelskie 5y ago
  Except how much someone is willing to pay for something depends on, among other things, prevailing market prices, which are influenced by marginal costs. I may be happy to buy a house for anything less than 200k but if all houses are selling for 100k, then that (or something like it) will be the amount I am actually willing to pay. If construction costs rise and now builders are only selling houses for 150k, I will now be willing to pay that price.
- coldtea 5y ago
  >The price (of anything) is determined by one thing alone: how much someone is willing to pay for it. Which, as a catch-all condition, is next to useless to examing why the price of something is what it is. The question then moves to the next turtle: why are people willing to pay X for a house in area Y. >The cost of building is not relevant in any way to that. Well, that's not true. In a place were land is plentiful and cheap, the price to get a house is dominated by the cost of building. Doesn't matter if there's an existing house that someone is willing to pay 100 for it. If people can trivially buy land and build for 20, that would be the cost to own a house in the area (note: a house, not THAT particular house).
  - mrep 5y ago
    > Well, that's not true. In a place were land is plentiful and cheap, the price to get a house is dominated by the cost of building. Doesn't matter if there's an existing house that someone is willing to pay 100 for it. If people can trivially buy land and build for 20, that would be the cost to own a house in the area (note: a house, not THAT particular house). Definitely true, just look at home prices in the south and midwest where there is plenty of land [0]. [0]: https://www.supermoney.com/inflation-adjusted-home-prices/ https://www.supermoney.com/inflation-adjusted-home-prices/
s1artibartfast 5y ago
Some interesting historical context on construction costs: 100 years ago the cost of construction was about $45/sqft when adjusted for inflation and today it is closer to $220/sqft, approximately 5x the cost. Blue collar wedges are pretty similar across time, but the cost of house construction (ignoring land) is dramatically higher. The 1914 sears Model 147 house was 900sqft and cost $872 for materials, estimated at $1,530 with labor.[1] Adjusting for inflation from 1914 to 2020, that is about $22,000 for materials and 40K with labor. Looking at 1913 US national labor statistics, the average baker in 1913 San Francisco worked 54 hrs/wk and made $0.46 per hour for an annual wage of $1,291[2] (or 33K in 2020 dollars) The median baker in 2020 California makes 36.5K/yr [3]. The cost of new housing construction is $220/sqft[4], or 200K for the same size house. http://www.searsarchives.com/homes/images/1908-1914/1913_0147.jpg http://www.searsarchives.com/homes/images/1908-1914/1913_014... https://fraser.stlouisfed.org/title/union-scale-wages-hours-labor-3912/union-scale-wages-hours-labor-may-15-1913-476866?start_page=79 https://fraser.stlouisfed.org/title/union-scale-wages-hours-... https://www.careeronestop.org/Toolkit/Careers/Occupations/occupation-profile.aspx?keyword=Bakers&onetcode=51301100&location=94122 https://www.careeronestop.org/Toolkit/Careers/Occupations/oc... https://ternercenter.berkeley.edu/wp-content/uploads/pdfs/Hard_Construction_Costs_March_2020.pdf https://ternercenter.berkeley.edu/wp-content/uploads/pdfs/Ha...
- kube-system 5y ago
  The standard of construction has also changed since 1914. Not only do few people want to build a 900sqft freestanding home, if they did it today with that Sears kit, it would break nearly every building code in the book. A more equal comparison would be to a prefab or mobile home, which you can get for that inflation adjusted price.
  - dzhiurgis 5y ago
    Did standard improve 5x tho? Probably by like 2-3x I'd guess. Or standard maybe even decreased in some ways, but we're actually paying for complexity. Also - building larger typically reduces price/sqm.
    - 5y ago
88840-8855 5y ago
I agree with the tone in the comments here - and the article. It is the land prices that drive prices. My income here in Germany is alright, according to statistics I am in the top 20% with my monthly income. Unfortunately, I will not be able to buy a decent apartment in the city to start a family if my gf/wife is not also in the top 20%, we get some support from parents and agree to pay off the debt for the next 35 years. This is the only reason why I am not starting a family. Times were different, housing was more affordable, but today everyone wants to live in the urban areas, the human population is growing, building standards increased, people can own land forever. In the city where I am living apartments were relatively affordable 20 years ago, today they cost twice as much. If you ask me then I have to rather populist solutions for the housing crisis: 1) nobody can own land; land is property of the people and can only be leased for 75 year or so; 2) one apartment per head. Not more. 3) all profits from selling real estate are taxed 100%. Those 3 measures would quickly lead to a huge price drop and speculation would not make much sense anymore.
- downrightmike 5y ago
  Cities have always been a place to make money, so people go there. We're at the point where not doing that, makes it impossible to live. SO that drives wages down and prices up.
- gjhh244 5y ago
  You could consider working remote / hybrid with a bit longer commute. There is no need for everyone to live in a big overpriced city.
  - watt 5y ago
    Just forget it. There's no special need to breed. India and China makes up the slack for the rest of the world.
    - 88840-8855 5y ago
      That's not correct. Chinese population is decreasing. Indian population will also decrease once it arrives in the muddle class. The issues are in borderline countries that have a high population growth and are prone to migration.
71a54xd 5y ago
The price of construction matters considerably whether you're planning on building mass market apartments or condominiums. Most cities have explicitly different building codes based on the intended use of the dwellings, interestingly most of the time to avoid civil litigation with the city. Condos generally have much higher quality duct-work / fresh air exchange not to mention thicker walls, more sound dampening etc. All of this is more expensive, but the cost is passed onto the buyer and ensures the contractor isn't on the hook for tenants levying lawsuits against the architect / contractor / city that conducted inspections.
hattmall 5y ago
This sort glosses over the real percentage of construction costs by giving only a 20 or so percent of profit. A large portion of construction though is the individual sub-contractors profits. I would guess that the large difference in costs vs 100 years ago is proportional to the increased number of subcontractors. A hundred years ago a lot of lumber was even at least partially milled on site too. The actual costs of real labor and real materials is pretty cheap. Even with the elevated building costs today you could still build an average home for sub $40,000 dollars if you control all aspects of the process.
- gedy 5y ago
  Yes, we built an extension to our home ourselves, material and tools was about $40k. We heard later that to contract this to a California builder would have cost us $150-200k
lifeisstillgood 5y ago
There was a fascinating conference filmed and on youtube at UCL on this subject (in my history, looking for it). The upshot is roughly that the owner of farm (hedonic) land knows how much their land is worth both with and without planning permission and the minute housing is thought of the price of the land 10x. And that's fair - no one wants to look like a chump. So any house building scheme to solve the housing crisis suddenly has this price built in, and thus any house building scheme immediately becomes too expensive to undertake. There was a solution in UK in early 1950s. A 100% land value tax. If you bought land for 10k and sold it for 100k you owed the government 90k. This quite simply took the heat out of the market, and allowed the government to invest in roads and schools and hospitals and so on. It mean that UK built two whole New Towns (widely seen as concrete monstrosities) but the point is they got built - enough new housing in a handful of years to create towns that still live breathe 80 years later. If we want house building schemes we have the answer.
- ip26 5y ago
  Supposedly this happened to a commuter rail line in Oregon; zero housing has been built around it because every land owner now wants top dollar.
- ClumsyPilot 5y ago
  "A 100% land value tax. If you bought land for 10k and sold it for 100k you owed the government 90k." I think this is fair - the land itself is a natural resource that the owner has (presumably) done nothing to improve - they are just hogging it so that nokne else can use it
imgabe 5y ago
Construction costs and land costs are not independent. A big part of the construction cost is the cost of labor. You can't do construction work remotely, so you need to hire workers who live relatively near the construction site. Which means they have to pay the high housing costs so you need to pay them more. It's a feedback loop where the more expensive housing is, the more expensive it will be to build housing.
- Waterluvian 5y ago
  On a macro scale this is likely true. Unless you ship in cheap workers for a season. On a micro scale, where I live, it’s not. A $2M home in Toronto is maybe $400k where I live, an hour down the road. And I know a lot of local workers who commute to Toronto every day to work on sites. (They do 7-3 to avoid traffic and the neighbours hate their nail gun wake ups)
  - imgabe 5y ago
    It's still relatively true. A $400k home is only cheap in comparison to a $2M home. That's quite a lot compared to the average laborer's wages. Maybe if those homes were $200k, the homes in the pricier area would be only $1M (not exactly obviously). $400k to live with an hour commute is not that great a deal IMO.
    - Waterluvian 5y ago
      My point is that the people who build the houses do not live within the same order of magnitude market. And yeah, commuting is nonsense. I’ll never ever do it.
      - imgabe 5y ago
        Right, but the costs in their market are still going to be affected by the high prices in the market where they work. It’s not feasible for them to live far enough away to escape the influence. Houses an hour from Toronto are still going to be more expensive because they’re an hour from Toronto and people can work there at higher paying jobs (but not enough to afford the $2M house in the city) and it’s worth it with the commute. The high prices in the city are going to drive up prices everywhere within commuting distance.
ClumsyPilot 5y ago
I don't know anything about construction, but I do know that my landlord is based in cayman islands. Why do we allow tax-heaven based shell companies to buy housing in areas where we officially declared a shortage, especially when we know much of that money is either stolen, or comes from dictators, or is doing tax evasion? It can't be helping the problem
jelliclesfarm 5y ago
This article doesn’t even bring up construction unions which can hike construction costs by about 20%. IF they allow construction in the first place. SF and London Breed couldn’t get affordable housing off the ground because a proposal by non union modular housing company in Mare’s landing was not within the county. + [..] Builders say apprenticeship requirements drive up the already sky-high expense of affordable-housing construction in a state where it can cost as much as $700,000 a unit to build in dense, urban areas such as San Francisco. They also argue that the union-backed provisions could slow or halt construction of affordable homes in lower-income rural and inland areas where there isn’t enough available union labor.[..]
- jelliclesfarm 5y ago
  https://www.wsj.com/amp/articles/california-needs-more-affordable-homes-this-union-stands-in-the-way-11618660801 https://www.wsj.com/amp/articles/california-needs-more-affor... [..] California’s State Building and Construction Trades Council, which represents 450,000 ironworkers, pipe fitters and other skilled laborers, has blocked numerous bills it says don’t guarantee enough work for its members. It contributes tens of millions of dollars to political candidates and campaigns, engages in aggressive lobbying, and pays for advertisements that portray opponents as lackeys of greedy developers. Legislative insiders say the success of the union known widely as “the Trades” is one of the main reasons Sacramento politicians have struggled to pass bills streamlining construction approval and easing zoning restrictions. Researchers say those steps are urgently needed to address skyrocketing real-estate prices and rents, as well as homelessness. “They’re a gatekeeper for any significant legislation moving through Sacramento” on housing, said Ben Metcalf, managing director at the Terner Center for Housing Innovation at UC Berkeley and former head of the state’s Housing and Community Development agency.[..]
teddyh 5y ago
To answer the question of the headline: Not at all. Once a house is built, the cost of building is a sunk cost. > if you could reduce the costs of construction, housing costs would fall as well. Why? What drives prices down is competition. Lower costs of construction might help with that, but only slightly, and I would guess that it will only help enough to shift the prices if construction costs are lowered by a magnitude or so. This whole argument sounds like arguing that we must reduce wages across the board in order to lower prices of goods. This never works.
- goodcanadian 5y ago
  I think you are missing a subtlety. You are quite right that the cost of housing is determined by supply and demand. However, neither side of the equation is fixed. You can create more supply by building more houses. However, construction has a cost. This effectively creates a floor price below which supply will not increase. You cannot realistically drive the price below this floor unless demand is falling.

197 points by ddubski 5y ago

im building a house and i got a bid from a foundation guy. he wanted 40k for a job that costs 10k in material. and i can easily do it myself. once i finish the house i will be able to offer a full breakdown of just how much you can save by doing it yourself.

IMAYousaf 5y ago

I like the name construction physics. There's a lot of value to be unlocked throughout the whole construction process by figuring out where the inefficiencies are particularly in financing IMO. There's this company called Shepherd or something like that that does build insurance and it's a fantastic example of how to make something meaningful.

TheChaplain 5y ago

Prices on housing will not go down as long as people have access to money IMHO, and plenty are willing to pay up if it means 30-45 min less commute to work.

Scoundreller 5y ago
If non-gov investors had to provide the mortgages instead of the fed, that access to money would dry up.
- deleted 5y ago
  [deleted]

arcticbull 5y ago

It's a question of supply and demand. In areas with high supply or low demand, the price of housing approaches the cost of construction. In places with punitive zoning rules that forbid new construction, limiting supply, and have high demand (I'm looking at you, San Francisco) the price of housing dramatically exceeds the cost of construction.

actuator 5y ago
London doesn't have this problem if I am not mistaken. But housing is very very expensive still. So much that a 3 bedroom 120sqm apartment can be more than 6 million dollars even outside Central London depending on the area.
- buscoquadnary 5y ago
  From everything I've heard London has some of most restrictive, bureaucracy laden, red tape filled city building processes out there. I've heard that all of England has "councils" at the local level that basically operate as HOAs with the full force of the law. I don't know that I'd pick anywhere in the UK as a shining example of ease of building.
  - actuator 5y ago
    But then councils can compete with each other, the ones outside even do so. There are tons of high rises coming far from Central London but still reasonable commute to center, but that doesn't necessarily reduce the price of properties inside. Area has a lot to do with prices and unless these outer areas become self sufficient so much that Central London or rich boroughs lose lustre, the inner areas will command a high price.
    - iso1631 5y ago
      While demand outstrips supply as now, prices increase. These have a ceiling of the maximum people can afford. If everyone is given a £10k payrise, then rents will increase by £10k, and buying will increase by whatever an extra £10k a year will get you on the mortgage. Until supply increases enough so that demand is no longer artificially constrained that will be the case. Now there are places where supply is higher than demand, like inner cities in places like Stoke, and prices there are low enough that even a single earner on minimum wage with 6 months salary as a deposit can afford a 2 bed house [0] [0] https://www.rightmove.co.uk/house-prices/detailMatching.html?prop=114196907&sale=14460331&country=england https://www.rightmove.co.uk/house-prices/detailMatching.html...

rabuse 5y ago

Almost nothing, especially with the cheap materials used in current modern construction (unless requiring some hurricane code; ex. South Florida). It's all due to zoning limitations, and homeowners voting in their own interests to keep the supply down, and values to rise.

loeg 5y ago
The rebuild cost, as estimated by my insurance company, is more than half the total value of my house. And I live in Seattle, where land is relatively expensive. Construction cost is not "almost nothing" by any means.
- mpalczewski 5y ago
  A not insubstantial cost of that rebuild is permitting.
- sudosysgen 5y ago
  Doesn't that include the cost of demolition? Demolition done right is very expensive.
  - loeg 5y ago
    In a city, most construction is going to involve demolishing the previous structure. So you could argue there isn't much value in pricing construction sans the cost of demolition.
    - sudosysgen 5y ago
      Well no, because the cost of demolition is the same no matter what you build, right?
- mrep 5y ago
  Also, land is not scarce in the south and midwest which is we haven't really seen a rise in price per square foot in 40 years [0] as it is basically all construction costs as you can build a new home in a new suburb at the edge of the city. [0]: https://www.supermoney.com/inflation-adjusted-home-prices/ https://www.supermoney.com/inflation-adjusted-home-prices/

Mountain_Skies 5y ago

Thought for conversation: if you are able to work remote but still live in or near a major employment center, are you at least somewhat morally responsible for pricing out those who cannot work remote?

francisofascii 5y ago
If you are judging morality based on, taking more than what you need or deserve, or squandering a gift, then maybe. But that would be a high bar. How much space you take up and how you interact in your neighborhood would factor in much more than your presence. For example, if you lived in the slums of the city, but was a net positive for the community and caused some gentrification, that certainly should not count against you. How about people who can walk to mass transit but don't use it? That would be similar.
giantg2 5y ago
Not sure why you are being down voted. This seems like a legitimate question that I would like to see the opposite side of. For example, if I was permanently remote, I would like to move to a cheaper area. I can't because my wife doesn't want to leave the current county (because "It's the best county in the world"). Although I'm also not in a heavily populated area, more so on the edge of being rural.
- Mountain_Skies 5y ago
  Perhaps if I used the word 'ethically' rather than 'morally' there would have been less of an emotional reaction to the question.
  - giantg2 5y ago
    I do agree it could be worded better. I kind of doubt a single word would change the tone that significantly (given that many people don't know the difference).
- lastofthemojito 5y ago
  > I can't because my wife doesn't want to leave the current county (because "It's the best county in the world") For some reason that comment really piqued my curiosity. Obviously lots of us might choose different areas for various reasons (schools, weather, scenery, politics, recreational opportunities, cultural sites, etc). But to make a declaration of world's best must mean a lot of confidence in the greatness of one's county! It also reminds me how little I identify with the county I live in, perhaps because I've lived in a few, and perhaps because I currently live almost directly on a county border and can see the neighboring county from my back windows. Still, I'm curious what about your home county makes your wife so enthusiastic about it compared to well, everywhere else?

giantg2 5y ago

It's all about consumer preference. It seems this article largely misses this. People want to live in specific locations, or have to in order to find work. This drives land values up as demand increases. Policies can make this worse, but the problem will still manifest itself to some degree. (Potentially as affluent people, especially in suburban areas, buying up more land to create setbacks, or simply buying because they can afford it now, or HOAs setting limits, none of which help density, demand, and cost). "reduce the costs of construction, particularly residential construction (ie: housing)" Changing preferences are the best way to address this, yet is likely the most difficult to sucessfully influence. Houses being built today are mostly larger homes, and definitely much larger than the majority homes built generations ago. This means more materials, more labor, more regulation, etc. Now we might be using cheaper materials, or less per sqft, or using tools that increase speed of laborers. But I think this is mostly canceled out by just increasing the size of the house (ie we're growing into our fish bowl). For a personal example, my wife complains that an 1800 sqft house is too small.

bobthepanda 5y ago
So yes and no. One important factor to increasing house size is that localities in the US tend to have fairly large lot sizes. To recoup the cost of building on more expensive land, builders build more house, because the opposite (building 2 or more houses and subdividing the land) is just illegal.
com2kid 5y ago
> For a personal example, my wife complains that an 1800 sqft house is too small. A modern blueprint 1800sqft house, yeah, for sure. But somehow a 1960s split level at 1800sqft is spacious. We are throwing square footage away on multiple large bathrooms, 2 living rooms, 2 dining rooms, and then wonder why the rooms we actually occupy are so small. The recent trend towards 4 story narrow houses doesn't help. A literal 1/3rd of the house is taken up by stairs! I'm in a 2300sqft house that has 4 bedrooms and 3 bathrooms and an office. There is still a bit of wasted space, but not much! Meanwhile, I've seen new houses, 3000sqft, 3 bedrooms, 4 bathrooms, 1.5 million. "Oh you want 4 bedrooms? Those start at 1.7 million" <-- Said by an actual house developer

aurizon 5y ago

Low rates have created a mechanism where large amounts of housing are built by corporations and entrepreneurs for rent. Most of them borrowed market funds at 1% or even less, often on 100% credit, or ~~2-3% or less mortgages and built condos, houses and apartments. There was such a shortage that this drove up prices - yet since people needed a roof overhead, they were forced to pay 40-50% of household income for rent. Managed in bulk by management companies these costs were low and yields of 5-15% were achieved. In addition, many were rented as AirBNB's in low vacancy areas earning 50%, but seasonable. This is the cause - what is the cure? Home inflation and the Covid stimulus has ramped up inflation. The usual remedy for this is rates hike, but they are afraid that this will create a huge underwater home effect. Once this starts it can become a race to the bottom. Corporations will write off their equity losses, owners will get friend like bacon - they inch them up. The call it Scylla and Charybdis - between two evils, as they sit, the bacon piles up... https://en.wikipedia.org/wiki/Between_Scylla_and_Charybdis https://en.wikipedia.org/wiki/Between_Scylla_and_Charybdis

zdragnar 5y ago
National company built subdivisions like you mention (often 80-200 homes each, all cookie cutter mini mcmansions) are popping up where I live, but there isn't a shortage of other options. People arent moving there "just to put a roof over their heads" as if it were a choice of last resort. People are moving into them because they want to. Lower crime than the city, less lawn to maintain than the country, plenty of room indoors for the whole family during bad weather, looks posh (even if any craftsman would scoff at the crap construction). I wouldn't ever buy one myself, but some people wouldn't have it any other way.
- aurizon 5y ago
  Yes, house construction methods need to get modern. Most construction automation is labor savers, drill, nailers, gluers, foam extruded baseboards - but, people HAVE to have a place to live. The move to online work has helped many.

VikingCoder 5y ago

Going off on a tangent here: There's a sci-fi novel I want to write some time... You know how some countries have mandatory military service? Well, what if all of the "Essential" jobs, all had mandatory service? I want to do my own cherry-picking, selecting the "Essential" jobs, and especially those that are toilsome but that you can do with not a lot of training, and then do the math to see how many hours each able-bodied person in a country would need to do each job, in order to satisfy all of the needs of everyone in that society (able-bodied, or not.) And then build up a story around some people who are finishing their Essential Jobs, and are deciding whether to Retire into living off the dole, or whether to transition into some Skilled labor to live in more luxury. And then there's the fact that automation is making it so that less and less actual manual effort is required for the Essential jobs. So, does the society start categorizing new jobs as Essential, or do people end up with more discretionary time? I feel like this would have made a pretty okay Star Trek culture to encounter...

kiliantics 5y ago
Check out "The Dispossessed" by Ursula Le Guin
aaron695 5y ago
Hemospectrum 5y ago
You could approach this idea from the opposite direction: Put all essential jobs under military jurisdiction. There's real-world precedent illustrating some of the ways this would (and wouldn't) work.
- someguydave 5y ago
  >Put all essential jobs under military jurisdiction. Under that scenario the relative fairness of paying for jobs to be done would be replaced with the relative unfairness of being friends with the right people in the "plumber corps" to fix your toliet.

orev 5y ago

The price (of anything) is determined by one thing alone: how much someone is willing to pay for it. That’s it. The cost of building is not relevant in any way to that. Nicer materials, better design, etc. can make people willing to pay more, but if it’s too much they won’t pay. The only one who the cost of materials matters to is the builder. If it costs them more to build than they can sell it for (within whatever % profit margin they want), then they simply won’t build it.

sbelskie 5y ago
Except how much someone is willing to pay for something depends on, among other things, prevailing market prices, which are influenced by marginal costs. I may be happy to buy a house for anything less than 200k but if all houses are selling for 100k, then that (or something like it) will be the amount I am actually willing to pay. If construction costs rise and now builders are only selling houses for 150k, I will now be willing to pay that price.
coldtea 5y ago
>The price (of anything) is determined by one thing alone: how much someone is willing to pay for it. Which, as a catch-all condition, is next to useless to examing why the price of something is what it is. The question then moves to the next turtle: why are people willing to pay X for a house in area Y. >The cost of building is not relevant in any way to that. Well, that's not true. In a place were land is plentiful and cheap, the price to get a house is dominated by the cost of building. Doesn't matter if there's an existing house that someone is willing to pay 100 for it. If people can trivially buy land and build for 20, that would be the cost to own a house in the area (note: a house, not THAT particular house).
- mrep 5y ago
  > Well, that's not true. In a place were land is plentiful and cheap, the price to get a house is dominated by the cost of building. Doesn't matter if there's an existing house that someone is willing to pay 100 for it. If people can trivially buy land and build for 20, that would be the cost to own a house in the area (note: a house, not THAT particular house). Definitely true, just look at home prices in the south and midwest where there is plenty of land [0]. [0]: https://www.supermoney.com/inflation-adjusted-home-prices/ https://www.supermoney.com/inflation-adjusted-home-prices/

s1artibartfast 5y ago

Some interesting historical context on construction costs: 100 years ago the cost of construction was about $45/sqft when adjusted for inflation and today it is closer to $220/sqft, approximately 5x the cost. Blue collar wedges are pretty similar across time, but the cost of house construction (ignoring land) is dramatically higher. The 1914 sears Model 147 house was 900sqft and cost $872 for materials, estimated at $1,530 with labor.[1] Adjusting for inflation from 1914 to 2020, that is about $22,000 for materials and 40K with labor. Looking at 1913 US national labor statistics, the average baker in 1913 San Francisco worked 54 hrs/wk and made $0.46 per hour for an annual wage of $1,291[2] (or 33K in 2020 dollars) The median baker in 2020 California makes 36.5K/yr [3]. The cost of new housing construction is $220/sqft[4], or 200K for the same size house. http://www.searsarchives.com/homes/images/1908-1914/1913_0147.jpg http://www.searsarchives.com/homes/images/1908-1914/1913_014... https://fraser.stlouisfed.org/title/union-scale-wages-hours-labor-3912/union-scale-wages-hours-labor-may-15-1913-476866?start_page=79 https://fraser.stlouisfed.org/title/union-scale-wages-hours-... https://www.careeronestop.org/Toolkit/Careers/Occupations/occupation-profile.aspx?keyword=Bakers&onetcode=51301100&location=94122 https://www.careeronestop.org/Toolkit/Careers/Occupations/oc... https://ternercenter.berkeley.edu/wp-content/uploads/pdfs/Hard_Construction_Costs_March_2020.pdf https://ternercenter.berkeley.edu/wp-content/uploads/pdfs/Ha...

kube-system 5y ago
The standard of construction has also changed since 1914. Not only do few people want to build a 900sqft freestanding home, if they did it today with that Sears kit, it would break nearly every building code in the book. A more equal comparison would be to a prefab or mobile home, which you can get for that inflation adjusted price.
- dzhiurgis 5y ago
  Did standard improve 5x tho? Probably by like 2-3x I'd guess. Or standard maybe even decreased in some ways, but we're actually paying for complexity. Also - building larger typically reduces price/sqm.
  - 5y ago

88840-8855 5y ago

I agree with the tone in the comments here - and the article. It is the land prices that drive prices. My income here in Germany is alright, according to statistics I am in the top 20% with my monthly income. Unfortunately, I will not be able to buy a decent apartment in the city to start a family if my gf/wife is not also in the top 20%, we get some support from parents and agree to pay off the debt for the next 35 years. This is the only reason why I am not starting a family. Times were different, housing was more affordable, but today everyone wants to live in the urban areas, the human population is growing, building standards increased, people can own land forever. In the city where I am living apartments were relatively affordable 20 years ago, today they cost twice as much. If you ask me then I have to rather populist solutions for the housing crisis: 1) nobody can own land; land is property of the people and can only be leased for 75 year or so; 2) one apartment per head. Not more. 3) all profits from selling real estate are taxed 100%. Those 3 measures would quickly lead to a huge price drop and speculation would not make much sense anymore.

downrightmike 5y ago
Cities have always been a place to make money, so people go there. We're at the point where not doing that, makes it impossible to live. SO that drives wages down and prices up.
gjhh244 5y ago
You could consider working remote / hybrid with a bit longer commute. There is no need for everyone to live in a big overpriced city.
- watt 5y ago
  Just forget it. There's no special need to breed. India and China makes up the slack for the rest of the world.
  - 88840-8855 5y ago
    That's not correct. Chinese population is decreasing. Indian population will also decrease once it arrives in the muddle class. The issues are in borderline countries that have a high population growth and are prone to migration.

71a54xd 5y ago

The price of construction matters considerably whether you're planning on building mass market apartments or condominiums. Most cities have explicitly different building codes based on the intended use of the dwellings, interestingly most of the time to avoid civil litigation with the city. Condos generally have much higher quality duct-work / fresh air exchange not to mention thicker walls, more sound dampening etc. All of this is more expensive, but the cost is passed onto the buyer and ensures the contractor isn't on the hook for tenants levying lawsuits against the architect / contractor / city that conducted inspections.

hattmall 5y ago

This sort glosses over the real percentage of construction costs by giving only a 20 or so percent of profit. A large portion of construction though is the individual sub-contractors profits. I would guess that the large difference in costs vs 100 years ago is proportional to the increased number of subcontractors. A hundred years ago a lot of lumber was even at least partially milled on site too. The actual costs of real labor and real materials is pretty cheap. Even with the elevated building costs today you could still build an average home for sub $40,000 dollars if you control all aspects of the process.

gedy 5y ago
Yes, we built an extension to our home ourselves, material and tools was about $40k. We heard later that to contract this to a California builder would have cost us $150-200k

lifeisstillgood 5y ago

There was a fascinating conference filmed and on youtube at UCL on this subject (in my history, looking for it). The upshot is roughly that the owner of farm (hedonic) land knows how much their land is worth both with and without planning permission and the minute housing is thought of the price of the land 10x. And that's fair - no one wants to look like a chump. So any house building scheme to solve the housing crisis suddenly has this price built in, and thus any house building scheme immediately becomes too expensive to undertake. There was a solution in UK in early 1950s. A 100% land value tax. If you bought land for 10k and sold it for 100k you owed the government 90k. This quite simply took the heat out of the market, and allowed the government to invest in roads and schools and hospitals and so on. It mean that UK built two whole New Towns (widely seen as concrete monstrosities) but the point is they got built - enough new housing in a handful of years to create towns that still live breathe 80 years later. If we want house building schemes we have the answer.

ip26 5y ago
Supposedly this happened to a commuter rail line in Oregon; zero housing has been built around it because every land owner now wants top dollar.
ClumsyPilot 5y ago
"A 100% land value tax. If you bought land for 10k and sold it for 100k you owed the government 90k." I think this is fair - the land itself is a natural resource that the owner has (presumably) done nothing to improve - they are just hogging it so that nokne else can use it

imgabe 5y ago

Construction costs and land costs are not independent. A big part of the construction cost is the cost of labor. You can't do construction work remotely, so you need to hire workers who live relatively near the construction site. Which means they have to pay the high housing costs so you need to pay them more. It's a feedback loop where the more expensive housing is, the more expensive it will be to build housing.

Waterluvian 5y ago
On a macro scale this is likely true. Unless you ship in cheap workers for a season. On a micro scale, where I live, it’s not. A $2M home in Toronto is maybe $400k where I live, an hour down the road. And I know a lot of local workers who commute to Toronto every day to work on sites. (They do 7-3 to avoid traffic and the neighbours hate their nail gun wake ups)
- imgabe 5y ago
  It's still relatively true. A $400k home is only cheap in comparison to a $2M home. That's quite a lot compared to the average laborer's wages. Maybe if those homes were $200k, the homes in the pricier area would be only $1M (not exactly obviously). $400k to live with an hour commute is not that great a deal IMO.
  - Waterluvian 5y ago
    My point is that the people who build the houses do not live within the same order of magnitude market. And yeah, commuting is nonsense. I’ll never ever do it.
    - imgabe 5y ago
      Right, but the costs in their market are still going to be affected by the high prices in the market where they work. It’s not feasible for them to live far enough away to escape the influence. Houses an hour from Toronto are still going to be more expensive because they’re an hour from Toronto and people can work there at higher paying jobs (but not enough to afford the $2M house in the city) and it’s worth it with the commute. The high prices in the city are going to drive up prices everywhere within commuting distance.

ClumsyPilot 5y ago

I don't know anything about construction, but I do know that my landlord is based in cayman islands. Why do we allow tax-heaven based shell companies to buy housing in areas where we officially declared a shortage, especially when we know much of that money is either stolen, or comes from dictators, or is doing tax evasion? It can't be helping the problem

jelliclesfarm 5y ago

This article doesn’t even bring up construction unions which can hike construction costs by about 20%. IF they allow construction in the first place. SF and London Breed couldn’t get affordable housing off the ground because a proposal by non union modular housing company in Mare’s landing was not within the county. + [..] Builders say apprenticeship requirements drive up the already sky-high expense of affordable-housing construction in a state where it can cost as much as $700,000 a unit to build in dense, urban areas such as San Francisco. They also argue that the union-backed provisions could slow or halt construction of affordable homes in lower-income rural and inland areas where there isn’t enough available union labor.[..]

jelliclesfarm 5y ago
https://www.wsj.com/amp/articles/california-needs-more-affordable-homes-this-union-stands-in-the-way-11618660801 https://www.wsj.com/amp/articles/california-needs-more-affor... [..] California’s State Building and Construction Trades Council, which represents 450,000 ironworkers, pipe fitters and other skilled laborers, has blocked numerous bills it says don’t guarantee enough work for its members. It contributes tens of millions of dollars to political candidates and campaigns, engages in aggressive lobbying, and pays for advertisements that portray opponents as lackeys of greedy developers. Legislative insiders say the success of the union known widely as “the Trades” is one of the main reasons Sacramento politicians have struggled to pass bills streamlining construction approval and easing zoning restrictions. Researchers say those steps are urgently needed to address skyrocketing real-estate prices and rents, as well as homelessness. “They’re a gatekeeper for any significant legislation moving through Sacramento” on housing, said Ben Metcalf, managing director at the Terner Center for Housing Innovation at UC Berkeley and former head of the state’s Housing and Community Development agency.[..]

teddyh 5y ago

To answer the question of the headline: Not at all. Once a house is built, the cost of building is a sunk cost. > if you could reduce the costs of construction, housing costs would fall as well. Why? What drives prices down is competition. Lower costs of construction might help with that, but only slightly, and I would guess that it will only help enough to shift the prices if construction costs are lowered by a magnitude or so. This whole argument sounds like arguing that we must reduce wages across the board in order to lower prices of goods. This never works.

goodcanadian 5y ago
I think you are missing a subtlety. You are quite right that the cost of housing is determined by supply and demand. However, neither side of the equation is fixed. You can create more supply by building more houses. However, construction has a cost. This effectively creates a floor price below which supply will not increase. You cannot realistically drive the price below this floor unless demand is falling.