How much do construction costs matter to the price of housing?
constructionphysics.substack.com
How much do construction costs matter to the price of housing?
1–10 of 343 posts
Re: How much do construction costs matter to the price of housing?
#2Prices 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.
Re: How much do construction costs matter to the price of housing?
#3It'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.
Re: How much do construction costs matter to the price of housing?
#4Almost 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.
Re: How much do construction costs matter to the price of housing?
#5Thought 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?
Re: How much do construction costs matter to the price of housing?
#6It'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.
Can we be more precise in language on what “new housing” means. More urban sprawl versus densification both are “new housing” but very different. I’m pro densification but highly against sprawl.
Re: How much do construction costs matter to the price of housing?
#7It'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.
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.
Re: How much do construction costs matter to the price of housing?
#8It'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.
Re: How much do construction costs matter to the price of housing?
#9Low 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
Re: How much do construction costs matter to the price of housing?
#10It'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.
Can we be more precise in language on what “new housing” means. More urban sprawl versus densification both are “new housing” but very different. I’m pro densification but highly against sprawl.
Yeah me too, I should have been more precise. I was referring to densification.