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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?

#161

Post by irrational »

zizee wrote: post #148
brimble wrote: post #134

Earlier quoted context omitted.

My dad, born in toward the end of WWII, has complained for at least the last three decades that it keeps getting harder every year to find usable boards at lumber yards. Tons of them warped, damaged, way too many knots or other problems, and so on, and that's when you are shopping a couple tiers up from the worst stock. I don't know why that is, but that seems to be the trend he's seen over his life. Makes sense, if…

Interesting. This might be explained by the switch from old growth to new growth^. Older trees would be larger, and have more core to work with (I think knots are mostly from the outer layers of the tree). ^ this is pure speculation

The core (heartwood) is the worst part of the tree. Now the trees are harvested so young that the entire things are junk heartwood.

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

#162

Post by downrightmike »

88840-8855 wrote: post #56

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…

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.

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

#163

Post by cma »

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…

It seems like there should be a better metric using purchasing power parity since it is domestic labor intensive.

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

#164

Post by imgabe »

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.

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

#165

Post by fleddr »

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?

Practically speaking, the areas you speak of will always have high demand, no matter the type of demand. It's never going to be affordable. Accept it.

Second, somebody living in a small super expensive apartment whilst fully working remotely is likely to have a miserable time (COVID situation). If they would have the type of job security guaranteeing they can continue working remotely for a long time, surely many of them might leave. Those that stay likely have non-work reasons to stay, like proximity to family or other attractions of the city.

As for home ownership, it's a market, and there's no such thing as morality in markets. If you think that sounds cruel and selfish, try this simple thought exercise: the people currently priced out of owning a home, imagine they somehow do acquire a home. Now add 10 years and their homes appreciating 50% in value. Now they sell, do you honestly believe that these people that were all about social fairness and morality now apply a 50% discount to the buyer, out of the goodness of their heart?

I don't think so.

Likewise, if something happens to your home (expensive repairs, mortgage issues) do "moral" people come to help and compensate you? No. Your problem, you're the owner.

Anyway, I do empathize with the point, and I think we need a systemic change. The spreading of work/cultural locations into more places/hubs. The idea that you can cram ever more people in a tiny area and somehow keep this stable and working is just a ridiculous illusion.

Extra supply doesn't really work in these areas, so indeed...reduce demand, by moving it.

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

#166

Post by ClumsyPilot »

s1artibartfast wrote: post #100
kube-system wrote: post #83

Earlier quoted context omitted.

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.

I totally agree that the take away is construction costs are going up over time! This holds true even if you look at price/foot opposed to total cost. Like you said, part of this is differences in what you get, building codes, and amenities. That said, Craftsmen homes are wonderful and in some respects have better build quality than modern homes.

In UK you can buy a house that was built in the dark ages, before Americas were 'discovered', were declared a listed building and the owners are legally barred from making major changes.

They cost like 3x what a newbuild does, this "but building codes" stuff doesnt stand up to scruitiny.

You dont have to use wood, we have brick. We've had automation and 100 years of growth in productivity.

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

#167

Post by giantg2 »

lurgburg wrote: post #156
giantg2 wrote: post #117

Earlier quoted context omitted.

"I dont magic myself a raise because income tax goes up. It works the same for landlords. If supply and demand remains unchanged, prices remain unchanged." What you're missing is that the market floor get universally pushed up. There's no competition from cheaper places because they all increased their rent to cover the new coat so they can still make their same margin. The demand is still there because people still…

> they all increased their rent Why would they not have done this before, if they could? Landlords aren't trying to maintain some fixed margin, they want as much as possible, always.

Because of competition. They can't all conspire together to price fix (or if they do they could be arrested).

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

#168

Post by anm89 »

kube-system wrote: post #83
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…

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.

also as someone who is working with architects and builders right now on a house, I can say the houses you are getting at the 250 /sqft range in many cases are terribly built.

They are going to last a fraction of the time that that $45 / sqft house from 100 years ago lasted

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

#169

Post by giantg2 »

lurgburg wrote: post #158
giantg2 wrote: post #111

Earlier quoted context omitted.

"That leaves 50% of land owned by the 1%." Is a lot of that farm land, like with Gates? I thought a lot of the investors are involved with apartments, which don't take up much land?

LVT is generally conceptualised as proportional to the value of the land, not it's area.

And how do you set that if excluding the type of property that's on it?

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

#170

Post by giantg2 »

bumby wrote: post #145
giantg2 wrote: post #111

Earlier quoted context omitted.

"That leaves 50% of land owned by the 1%." Is a lot of that farm land, like with Gates? I thought a lot of the investors are involved with apartments, which don't take up much land?

Maybe somebody can clarify, but wouldn't that land also be much less taxable per acre because the value is lower?

That's part of what I'm missing here. How is that value calculated?
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