Live data from Hacker News

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

constructionphysics.substack.com

221–230 of 343 posts

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

#221

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…

my un-schooled guess is simple - the rest of the industrialized world has benefited from profit markups in real dollars of today - that fun book or skateboard was priced in modern terms.. while lumber is a commodity from the previous century or three.. their dollars and costs were low to start with, and were pressed down by commodity markets. I once asked a recent undergrad in Economics graduate, at a party, why one…

A pound of the cheapest bread here is $0.86. The cheapest meat (bone in chicken) is about double that.

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

#222

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.

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

Writing in context of preceding comment, which seemed to be predicated on them having a special capacity to raise prices in response to land taxes.

I did wonder briefly if a land tax might decrease competition => higher prices, but then I recalled that the supply of land is fixed.

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

#223

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…

my un-schooled guess is simple - the rest of the industrialized world has benefited from profit markups in real dollars of today - that fun book or skateboard was priced in modern terms.. while lumber is a commodity from the previous century or three.. their dollars and costs were low to start with, and were pressed down by commodity markets. I once asked a recent undergrad in Economics graduate, at a party, why one…

Bread doesn't seem like the best example here, because the finished product is not dense, can't be smushed, and has to get shipped to the store. Transport plus the shelf space (and rotation) can explain most of the price.

If you look at pure flour, rice, beans, pasta, and stuff like that, there are lots of cases where it drops from prepared-foods price down to something closer to its commodity value. Looking up rice, it goes for $14/c.w.t., which I think translates to a little over $0.10 per pound. You can't buy it at that price, but you can buy a literal 1 lb bag of the bad rice for $1.00. Consider larger quantities and you'll probably see an asymptote to a reasonable multiple times the commodity value.

Meat will not follow those rules. The floor for meat is much higher due to the physical inefficiency of production. Even at that higher price floor, there are huge untaxed externalities. A lot of people know the reality that we have to eat a lot less meat due to halt climate change. I think there is a strong business and social culture for businesses to move meat at close to its price floor, with business models like fast food.

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

#224
post #221

Earlier quoted context omitted.

my un-schooled guess is simple - the rest of the industrialized world has benefited from profit markups in real dollars of today - that fun book or skateboard was priced in modern terms.. while lumber is a commodity from the previous century or three.. their dollars and costs were low to start with, and were pressed down by commodity markets. I once asked a recent undergrad in Economics graduate, at a party, why one…

A pound of the cheapest bread here is $0.86. The cheapest meat (bone in chicken) is about double that.

Here, it's about the same cost ($0.86) for both the bread and the chicken (whole chicken - or even cheaper for leg quarters)

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

#225

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…

They cost about the same. There's a few differences, like some better tech--also some worse tech, like preferring lasers and CPUs over older cheaper techniques that also work better[1]. There's more regulation too. And wages have swung upward and downward in the intervening time, right now we're barely past the bottom of the cycle[2] of the relationship between leaf-node employee wages and everything else.

But the real difference is that official inflation is a lie. Inflation since 1970 is closer to 38x (candy-jar guessing), not 7.25x. So the costs of construction are pretty similar.

[1] So once upon a time, to create a level line, and in Latin America to this day, you fill a clear hose held up in a U-shape with water up to a foot from the top on either end. Hold one waterline up to the mark that marks the height you want for the level line. Then extend the other end out to the wall you want the level line to extend to. The waterline will be at the same height on either end. Mark it. That's the endpoint of the level line. Costs like three dollars for the hose and that hose lasts indefinitely unless it is damaged, by getting stepped on pretty much not due to any other reason. Whereas apparently in USA there's laser levels that have all these buttons and a manual and a CPU and data and...yuck. And it starts at $29.99 for the basic model, of what I can tell--you can't look up prices online anymore much because they're tailor in many cases. That's what I think that crappy product costs--that's the "price point" they target. Plus there's price discrimination and rebates, points, programs, whereas with the clear hose you're clearly not getting hosed.

[2] Since about the seventies--a time when I daresay managers were underpaid--there has been opposition at multiple different levels against leaf-node employee wages. From opposing the minimum wage, to promoting immigrant arrivals who rarely manage anybody when they arrive, to busting unions and strikes, to right-to-work laws, plus noncompetes for the likes of sandwich makers, plus SCOTUS making paying union dues destined for political speech optional (but no such luck for the part of the price for a good that corporations destine for political speech), to women entering the workforce (more leaf-node competition, they don't start out as management), to college becoming impossible to pay for as a leaf-node worker, then endless distortions in the housing market to make rent a third of income (this is by design, it can just as easily be a tenth), plus the erosion of safety nets...it's a subject unto itself, but leaf-node wages are heavily opposed in America. After IIRC their peak in 1978, 44 years ago, they are coming back up from the trough. Tying it back to the subject of inflation, leaf-node wages are considered inflationary in a way that other wages are not. And according to the BLS, inflation and leaf-node wages are the sameself thing.

EDIT: I forgot the other main ingredients of inflation: commodities, cars and computers. Commodity prices are also strongly opposed politically, corporately, and "mediatically." Cars and computers are not politically opposed--on the contrary, they're good, that's why they're included, to make inflation look smaller, look it up on http://www.shadowstats.com.

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

#226
post #130

Earlier quoted context omitted.

Quality lumber is incredibly expensive now compared with 1914. I owned a 1910s-construction house for a while, and they used huge, thick wooden boards around the foundation where the structure met the stone-and-mortar basement walls, and in the floor joists (visible in the basement), and in the diagonally-run underfloor boards (used where we'd use plywood, today). Nearly knot-free, perfectly straight, that stuff woul…

I'm really curious to know why, in our hyper-industrialized world of today, is lumber so expensive when compared to yesteryear? Is it cost of land on which it grows? Is it increased demand because of population growth? Increased demand because of new uses? Increased demand because of global markets? Is it because lumbar prices were artificially depressed because the cost of growing new trees was not included (because…

At least in Finland, there has been a trend of forest owners to favor faster growing species or just felling them earlier. Most of the trees won't be good enough for quality lumber so it's just sold at bulk prices to paper mills. With the method you can probably get 2 good harvests in the time of one. If you let the tree grow 100 years instead of 30, you might not still get 3x the price and you would have to wait 70 years more.

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

#227

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.

Quality lumber is incredibly expensive now compared with 1914. I owned a 1910s-construction house for a while, and they used huge, thick wooden boards around the foundation where the structure met the stone-and-mortar basement walls, and in the floor joists (visible in the basement), and in the diagonally-run underfloor boards (used where we'd use plywood, today). Nearly knot-free, perfectly straight, that stuff woul…

> Quality lumber is incredibly expensive now compared with 1914.... Nearly knot-free, perfectly straight, that stuff would probably be put aside for high-end fine woodworking or even veneer-making, now. It was beautiful stuff and they stuck it under the floors.

Could that have been lumber from old growth forests that are now either extinct or protected from logging?

IIRC, lumber nowadays is basically farmed using relatively fast-growing trees.

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

#228
post #190

Earlier quoted context omitted.

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.

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.

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

#229
post #168

Earlier quoted context omitted.

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

I don’t need a house that lasts 100 years. My estate will be selling it in 50 years, if I don’t sell it in the average ownership duration of 10 years. Lasting a long time does not mean a structure is better in every way. Old housing can be a challenge in terms of safety, cohesive design, lifestyle fit, land use, environmental concerns, etc. In Japan, for instance, it is popular to frequently tear down housing rebuild…

So you think tearing down a house every 50 years isn't an environmental problem? It absolutely is. Concrete especially causes major Co2 emissions.

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

#230

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…

By how much and why the cost of labor has changed over time is an interesting question. I'd assume that the bulk of the cost of labor is wages, but there are some other direct and indirect costs that might contribute in addition to wage related factors.

Carrying workers' compensation insurance was not the norm at the turn of the 20th century; injured workers could instead sue their employer for negligence but usually lost. Legal challenges to state legislation that made participation in a workers' compensation program mandatory weren't resolved until the Supreme Court's 1917 ruling on N.Y. Central R.R. Co. v. White. In the modern day, Texas is the only state where workers' compensation insurance isn't mandatory.

In a similar vein, workplace safety standards have seen a lot of change. With the exception of a few states that passed legislation sooner, workplace safety was largely unregulated until the Occupational Safety and Health Act of 1970 established OSHA.

I know less of the specifics but consumer protection laws have also changed. Many states now impose statutory warranties on new construction that cover construction defects for a period of time. It seems plausible that builders had less liability for such defects in 1914.

Construction equipment and the cost of running and maintaining it is another thing that I would expect gets rolled into the cost of labor. I'd assume that equipment costs are usually offset by increased efficiency (paying wages for less time), so it wouldn't increase the cost of labor, but it would be interesting to see data on that.

As far as wage-related factors, while blue collar wages may not have changed in general there are some exceptions. Based on the sources you provided, plumbers in 1913 San Francisco worked 44 hrs/wk and made $0.75 per hour for an annual wage of $1716 (or $44.9K in 2020 dollars). The median plumber in 2020 San Francisco makes $110.9K/yr. (Since SF might be an outlier, in St Louis in 1913 plumbers made $1515 annually, equivalent to $39.6K in 2020, and had a median annual wage of $80.6K in 2020.)

It's also possible the number and types of workers required to build a home has changed. Constructing a new home might now require more "specialists" (like plumbers) who command higher wages to do work that was either not done at all or was previously done by general laborers paid lower wages. It would be interesting to see data on that as well.

Post reply on HN