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

constructionphysics.substack.com

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

#51

Post by dragonwriter »

com2kid wrote: post #19
giantg2 wrote: post #8

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…

> 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…

> We are throwing square footage away on multiple large bathrooms, 2 living rooms, 2 dining rooms

Two living rooms (well, “living” and “family”) and two (“formal” and, well, not) dining rooms are pretty common in 1960s homes at the size being discussed.

Bedrooms, bedroom closets, and kitchens are probably smaller than newer homes, though.

> The recent trend towards 4 story narrow houses doesn't help.

Tall, narrow houses have been a feature of urban single-family homes for a while, I don't think they are a new trend.

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

#52

Post by OnionBlender »

VikingCoder wrote: post #20

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-…

The Expanse briefly mentions this in one of the books. Earth has universal "basic" income but if people want to go to university they have to do 2 years of working less desirable jobs to show they can handle working.

I heard that Starship Troopers book had something like what you described but I haven't read it.

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

#53

Post by giantg2 »

pydry wrote: post #37
giantg2 wrote: post #8

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…

>People want to live in specific locations, or have to in order to find work. This drives land values up as demand increases. This ignores the world's giant pool of floating capital ravenous for returns that jumps on trends and amplifies demand by buying up what it thinks will have good resale or rental value. I saw this happen in the area I grew up in recently. Some people I know who were struggling to gather a depo…

I was including that under "or simply buying because they can afford it now".

"Of the two, B is a more prudent way of making property prices sane again."

Maybe if you taxed unused land. Otherwise that tax will end up increasing a resident's rent/mortgage substantially (as it's a perpetual annual expense). So really, you'd have to tax way above what a normal person can afford (average US household about $75k, so $7500 is 10% gross), and that still wouldn't be much of a disincentive to the wealthy (ignoring the fact the the market would collapse because normal people can't afford to buy it from them nor pay the rent).

Now if we did tax unused land, then we are reducing conservation and incentivize development. This is a major concern for some areas, especially around loss of agriculture land, riparian buffers for water quality, etc.

If we had work that was more distributed, like remote is for IT, then it's possible the effects of all the capital flooding a handful of markets would be diluted by spreading it across numerous others. A generation or two ago we had many small cities with industrial or manufacturing jobs. Now it seems many of those cities have shrunk while the national population has grown, mostly concentrating in specific metro areas.

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

#54

Post by pjc50 »

pydry wrote: post #37
giantg2 wrote: post #8

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…

>People want to live in specific locations, or have to in order to find work. This drives land values up as demand increases. This ignores the world's giant pool of floating capital ravenous for returns that jumps on trends and amplifies demand by buying up what it thinks will have good resale or rental value. I saw this happen in the area I grew up in recently. Some people I know who were struggling to gather a depo…

Indeed. Someone recently discovered that fifteen landlords own about 10% of Edinburgh: https://www.thenational.scot/news/19926004.edinburghs-housin...

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

#55

Post by chrisseaton »

s1artibartfast wrote: post #50

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…

Baker is a strange salary to look at. Back then bakers were everywhere churning out a staple food by hand. Today a baker is likely to be an artisan of some kind, with a specialist product.

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

#56

Post by 88840-8855 »

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.

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

#57

Post by csee »

bumby wrote: post #39
mint2 wrote: post #6

Earlier quoted context omitted.

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.

> I’m pro densification but highly against sprawl. My natural inclination is to agree with this statement, but I'd like to hear your rationale. Can you elaborate on your preference? Is it location dependent?

Sprawl is environmentally unfriendly (transport distance and construction material usage), financially expensive (sparse service provision, roads), and it excludes poor people from the city center (since everyone has to compete to be within 15 minutes)

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

#58

Post by pydry »

bumby wrote: post #46
pydry wrote: post #37

Earlier quoted context omitted.

>People want to live in specific locations, or have to in order to find work. This drives land values up as demand increases. This ignores the world's giant pool of floating capital ravenous for returns that jumps on trends and amplifies demand by buying up what it thinks will have good resale or rental value. I saw this happen in the area I grew up in recently. Some people I know who were struggling to gather a depo…

How do you implement B) without causing a disproportionately negative impact on existing homeowners? For example, would you just tax "new" purchases more heavily? Or scale it into existing homes? Give caveats for fixed-income (elderly and disabled)? Politically, this seems like a tough road, even if it's the best choice. You have to essentially convince people to vote against their own economic self-interest. I think…

Land value tax.

It could be made palatable to regular people by making a high tax free threshold. Most homeowners could be left unaffected.

That leaves 50% of land owned by the 1%. A fair chunk.

Additionally the money could be funneled initially into pensions for the impoverished elderly.

Capital/billionaires would fight back by arguing that it would hit the elderly the hardest just as the howard jarvis taxpayers foundation did with prop 13 but if it was very obvious how many elderly people were helped, crying about grandmothers having to sell multimillion dollar mansions would probably backfire.

They would throw immense resources at trying to discredit and kill this, though. They would use every character assassination trick in the book to stop those pushing it. Some would probably also resort to violence if that failed. It would be an uphill battle the whole way.

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

#59

Post by Mountain_Skies »

giantg2 wrote: post #13
Mountain_Skies wrote: post #5

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?

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.

Perhaps if I used the word 'ethically' rather than 'morally' there would have been less of an emotional reaction to the question.

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

#60

Post by lastofthemojito »

giantg2 wrote: post #13
Mountain_Skies wrote: post #5

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?

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.

> 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?

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