Building a home increases the costs of buying land, the process of obtaining permits and multiple inspections. The farther your plan moves away from a standard model, the more expensive it will be. Building lots in urban areas can be prohibitively expensive. The houses are large, bulky and built with many different parts.
In addition, a house contains a wide variety of materials and equipment. Housing construction encompasses practically the entire field of raw material production, while nearly 70 different industries process materials, such as wood, cement, brick, plaster, etc. In normal times, the builder has a wide variety of materials. You can get window frames made of wood, steel, bronze, or aluminum; wood, clay, stone, rubber, cork or fiberboard products; asbestos tiles or tiles, cement, bituminous materials, wood, clay, or stone. Sometimes a piece is made of many materials.
Therefore, asphalt roof tiles can contain felt, asphalt and pieces of stone; windows can have wooden frames, glass panels, steel clips for glass, putty, nails and screws, aluminum strainers, bronze hardware, iron weights, cotton cords, glue, and oil and lead paint. Construction prices increased like most items during the pandemic and for similar reasons. Delayed packages, lack of workers and inflation, in general, are to blame for the high prices that remain today. The second is the “permit sheet”, the right to build a certain number of houses that are attached to the plot. Another way to look at it is that in the areas where we need housing the most, zoning and regulatory factors are responsible for the majority of housing costs.
The National Construction Estimator (whose estimates roughly match census cost data and are therefore likely to be a good average) suggests a much more modest gain of 5% for builders. This doesn't even include the materials needed for siding, plumbing, electricity and other additional aspects of home construction. And in dense metropolitan areas (the places that most need housing), it can be even higher, exceeding 70% of the cost of housing. Homes are expensive primarily because they are large, bulky items that require a lot of parts that many workers have to assemble in one place.
Given the importance of regulatory restrictions on housing in online discourse (zoning, NIMBY vs. YIMBY, etc.), I think a lot of people would be surprised that land only represents about 20% of the cost of a new home. Due to the wide variety and quantity of parts, building a house is a long and difficult task, and the builder must hire many types of workers, both qualified as unqualified. Land costs are often evaluated as a kind of waste, taking the price of a house and subtracting the cost (adjusted for depreciation) of replacing the structure.
However, when it comes to housing construction, there is little conclusive evidence that the industry as a whole reduces costs as a result of major changes in materials or production methods. Indirect costs, as we have noted, include funding, permits, inspections, design work and other administrative tasks that are not directly related to the construction of physical housing. In most cases, both in the case of new and existing homes, the most important item is the cost of building the house itself. While building a home is expensive and the average cost has been increasing, the most important decision is who you work with to achieve your goals. So, while the price of land doesn't represent a particularly large fraction of the cost of a new home, it's a much larger proportion of the cost of an existing home.
The Bureau of Labor Statistics discovered in 1938 that the average single-family homebuilder in 72 cities built only three-and-a-half homes a year...
