How much do construction costs matter to the price of housing? • Hacker News Board

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

#261

Post by ajuc » Thu, Feb 17, 2022, 9:51 AM UTC

throwaway19423 wrote: post #129

brimble wrote: post #127

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 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 don't think most countries build houses of wood like North America does. In Europe houses are mostly built of various kinds of bricks and concrete. Only the roofs in detached houses are usually made of wood (and not all of them).

That's how most houses are built in central Europe for example: https://budujemydom.pl/i/2020/01/02/215608-d885-1100x0-sc1x5...

Of course later the insulation is added: https://s3.eu-central-1.amazonaws.com/pressland-cms/cache/__...

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

#262

Post by watt » Thu, Feb 17, 2022, 9:55 AM UTC

gjhh244 wrote: post #231

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…

You could consider working remote / hybrid with a bit longer commute. There is no need for everyone to live in a big overpriced city.

Just forget it. There's no special need to breed. India and China makes up the slack for the rest of the world.

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

#263

Post by mrep » Thu, Feb 17, 2022, 9:57 AM UTC

pydry wrote: post #114

giantg2 wrote: post #101

Earlier quoted context omitted.

"It would do nothing to rents or mortgages intrinsically" Most people have their property taxes escrowed with their mortgage payments. Taxes can easily account for 25% of one's monthly payments. As for rent, the property owners just pass the cost on to the tenants by increasing rent. So property taxes are related to rent and mortgage payments. Even if not included directly in the mortgage payment, it affects how much…

>As for rent, the property owners just pass the cost on to the tenants by increasing rent Rents would either remain unchanged or go down. 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. The only change I could forsee to affect either is previously empty properties being put up for rent in order to cover tax payme…

Basically every city in the world is growing and thus demand is increasing. If you increase costs and make it unprofitable to build, nobody is going to build until the rising demand increases rent to make it profitable.

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

#264

Post by michaelt » Thu, Feb 17, 2022, 10:03 AM UTC

Thorrez wrote: post #246

alar44 wrote: post #234

Earlier quoted context omitted.

Because it's a 0 effort renewable resource.

The question is why is the sale price $100. If it's 0 effort, you would think it would be cheaper.

Imagine my great-grandfather planted a seed 150 years ago for $0, then we did nothing but wait for 150 years, then I chop it down and get $100 of lumber.

But you can't enter the market and compete with me, because you don't have the right grandfather.

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

#265

Post by kevin_thibedeau » Thu, Feb 17, 2022, 10:03 AM UTC

AlanSE wrote: post #223

mistrial9 wrote: post #153

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…

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,…

Bread is easily produced locally or regionally from bulk materials. Processed meats are shipped hundreds and thousands of miles to the consumer.

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

#266

Post by teddyh » Thu, Feb 17, 2022, 10:06 AM UTC

To answer the question of the headline: Not at all. Once a house is built, the cost of building is a sunk cost.

> if you could reduce the costs of construction, housing costs would fall as well.

Why? What drives prices down is competition. Lower costs of construction might help with that, but only slightly, and I would guess that it will only help enough to shift the prices if construction costs are lowered by a magnitude or so.

This whole argument sounds like arguing that we must reduce wages across the board in order to lower prices of goods. This never works.

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

#267

Post by mrep » Thu, Feb 17, 2022, 10:08 AM UTC

ClumsyPilot wrote: post #177

giantg2 wrote: post #169

Earlier quoted context omitted.

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

I fail to see the relevance, land is zoned for farming or reaidential, that sets it value You could reform zoning, but its not a requirement

Without reforming zoning, it is largely useless. Sure it might cause some improvements in places underutilizing their land but I think most places are using their land for the highest value thing it is zoned for.

If I have a SFH zoned for SFH in the heart of manhattan next to skyscrapers, the value of the land isn't based on the skyscrapers, it is based on what you can put on it and you can prove that by selling it for which nobody is going to pay as if you could put a skyscraper there.

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

#268

Post by xyzzyz » Thu, Feb 17, 2022, 10:10 AM UTC

brimble wrote: post #127

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.

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…

That’s because when this country was still being settled, standing trees were an obstacle in the course of productively developing all this land, which, at the time, meant mostly agriculture. Before big machines arrived on the scene, getting rid of all of that heavy garbage was a lot of labor, and since there was a lot of trees around, and shipping them far away was way too expensive, there were few buyers, all of which made prices low. When all local trees were cut, land had been developed into farms and towns, and lumber needed to be shipped from further away, prices started going up.

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

#269

Post by goodcanadian » Thu, Feb 17, 2022, 10:12 AM UTC

teddyh wrote: post #266

To answer the question of the headline: Not at all. Once a house is built, the cost of building is a sunk cost. > if you could reduce the costs of construction, housing costs would fall as well. Why? What drives prices down is competition . Lower costs of construction might help with that, but only slightly, and I would guess that it will only help enough to shift the prices if construction costs are lowered by a mag…

I think you are missing a subtlety. You are quite right that the cost of housing is determined by supply and demand. However, neither side of the equation is fixed. You can create more supply by building more houses. However, construction has a cost. This effectively creates a floor price below which supply will not increase. You cannot realistically drive the price below this floor unless demand is falling.

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

#270

Post by kevin_thibedeau » Thu, Feb 17, 2022, 10:13 AM UTC

germinalphrase wrote: post #157

zizee wrote: post #130

Earlier quoted context omitted.

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…

Travel to logging country and you’ll see a lot of photos like this hanging on the walls of stores, bars, etc: https://miro.medium.com/max/2976/1*zUezbWclc1bubBJOS0qiew.jp... Old growth trees aren’t exactly growing back on a timeline that matters to you and me.

North america was heavily deforested during the pleistocene which wasn't really all that long ago. You can also find historic pictures of mass clear cutting from the start of the 1900s that are now heavily forested and will eventually produce large mature trees.