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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?

#211

Post by joe_the_user »

kube-system wrote: post #181
s1artibartfast wrote: post #100

Earlier quoted context omitted.

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.

I wouldn’t exactly characterize that as “construction costs going up” though. We’re building different things. The standard of living has changed significantly. The 1910’s were a very different time. Comparing houses now to houses then is like comparing a horse to a Honda Accord. We’re not just talking luxury features here —- You can be pretty certain that a home built in 2022 has indoor plumbing, a refrigerator, and…

Comparing houses now to houses then is like comparing a horse to a Honda Accord.

I don't think that's a fair comparison. I've lived in a Sear kit house. It had everything someone now would recognized as necessary for a house (including everything you mention, plumbing, wiring, etc and as opposed to a house built in the 1800s, which could have or not-have anything).

A fair comparison is a VW bug versus a modern SUV. The bug has everything needed to be a basic car but has nothing to make it special. And the comparison would be closer if only giant SUVs were being sold as cars today.

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

#212

Post by Waterluvian »

imgabe wrote: post #190
Waterluvian wrote: post #186

Earlier quoted context omitted.

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)

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.

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.

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

#213

Post by joe_the_user »

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.

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.

Lots of people want to build 900 sqft homes. It's just that with land costing 100s of ks and utility hookups etc at 100k, it make no sense to build a 900 sqft house.

Basically, areas with high house prices have created a situation building a little house on a bit of land is between very cost ineffective and simply impossible and then said "no one want to do this".

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

#214

Post by djdjfhsje33edh »

ClumsyPilot wrote: post #166
s1artibartfast wrote: post #100

Earlier quoted context omitted.

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.

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

I don't think that's a fair comparison. There is a fixed supply by definition of those old buildings, so their price will be pushed up by demand with little relation to their cost to build since they can't be built anymore.

A better comparison would be to look at the cost of new houses in developing places like SE Asia where there are little to no building codes.

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

#215

Post by bigyikes »

downrightmike wrote: post #160
throwaway19423 wrote: post #129

Earlier quoted context omitted.

I live in Canada, where we are swimming in lumber (in theory). I just don't understand why it is so expensive. I know the processing and treatment is very sophisticated but there is so much automation throughout the whole chain. My only explanation is that lumber is a globally traded commodity .. price isn't determined by just Canadian demand for lumber but the global demand. It makes me wonder .. if the US shutdown…

Why chop down 100 trees for $1/tree when you can chop down one tree at $100/tree?

The question is, why can you chop down one tree at $100/tree?

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

#216

Post by ip26 »

lifeisstillgood wrote: post #133

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 cri…

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.

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

#217

Post by WalterBright »

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…

Lumber is a great way to sequester carbon. Plant more trees!

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

#218

Post by conductr »

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…

Mechanical/appliances alone can run more than the inflation adjusted Sears house

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

#219

Post by lurgburg »

majormajor wrote: post #189
lurgburg wrote: post #156

Earlier quoted context omitted.

> 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.

The last few cities I've lived in have seen 10+ straight years of rent increases (with a brief drop then rapid spike again from COVID) so... they do already do this?

Writing in the context of preceding comment. Landlords increase prices as much as they're able, they don't decline to increase when they could to maintain some fixed margin. I'm not saying they're generally unable to rise prices in general, but that they have no special additional capacity to raise prices in response to land taxes.

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

#220

Post by moistly »

JKCalhoun wrote: post #207
throwaway19423 wrote: post #129

Earlier quoted context omitted.

I live in Canada, where we are swimming in lumber (in theory). I just don't understand why it is so expensive. I know the processing and treatment is very sophisticated but there is so much automation throughout the whole chain. My only explanation is that lumber is a globally traded commodity .. price isn't determined by just Canadian demand for lumber but the global demand. It makes me wonder .. if the US shutdown…

I would not be surprised if Canadian lumber was going to China. I believe a lot of Alaskan lumber, if not the majority of it, was China bound (this may have been close to two decades ago though when I had heard that).

Canadians are so stupid that we have allowed raw logs to be sold to Chinese offshore lumber mill ships, to be sold back to us, instead of insisting that the value-added processes be kept on-shore so that we have good-paying jobs for our own citizens.
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