Some interesting historical context on construction costs:<p>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.<p>The 1914 sears Model 147 house was 900sqft and cost $872 for materials, estimated at $1,530 with labor.[1] Adjusting for inflation from 1914 to 2020, that is about $22,000 for materials and 40K with labor.<p>Looking at 1913 US national labor statistics, the average baker in 1913 San Francisco worked 54 hrs/wk and made $0.46 per hour for an annual wage of $1,291[2] (or 33K in 2020 dollars)<p>The median baker in 2020 California makes 36.5K/yr [3]. The cost of new housing construction is $220/sqft[4], or 200K for the same size house.<p><a href="http://www.searsarchives.com/homes/images/1908-1914/1913_0147.jpg" rel="nofollow">http://www.searsarchives.com/homes/images/1908-1914/1913_014...</a><p><a href="https://fraser.stlouisfed.org/title/union-scale-wages-hours-labor-3912/union-scale-wages-hours-labor-may-15-1913-476866?start_page=79" rel="nofollow">https://fraser.stlouisfed.org/title/union-scale-wages-hours-...</a><p><a href="https://www.careeronestop.org/Toolkit/Careers/Occupations/occupation-profile.aspx?keyword=Bakers&onetcode=51301100&location=94122" rel="nofollow">https://www.careeronestop.org/Toolkit/Careers/Occupations/oc...</a><p><a href="https://ternercenter.berkeley.edu/wp-content/uploads/pdfs/Hard_Construction_Costs_March_2020.pdf" rel="nofollow">https://ternercenter.berkeley.edu/wp-content/uploads/pdfs/Ha...</a>
It's all about consumer preference. It seems this article largely misses this.<p>People want to live in specific locations, or have to in order to find work. This drives land values up as demand increases. Policies can make this worse, but the problem will still manifest itself to some degree. (Potentially as affluent people, especially in suburban areas, buying up more land to create setbacks, or simply buying because they can afford it now, or HOAs setting limits, none of which help density, demand, and cost).<p>"reduce the costs of construction, particularly residential construction (ie: housing)"<p>Changing preferences are the best way to address this, yet is likely the most difficult to sucessfully influence. Houses being built today are mostly larger homes, and definitely much larger than the majority homes built generations ago. This means more materials, more labor, more regulation, etc. Now we might be using cheaper materials, or less per sqft, or using tools that increase speed of laborers. But I think this is mostly canceled out by just increasing the size of the house (ie we're growing into our fish bowl).<p>For a personal example, my wife complains that an 1800 sqft house is too small.
It's a question of supply and demand.<p>In areas with high supply or low demand, the price of housing approaches the cost of construction.<p>In places with punitive zoning rules that forbid new construction, limiting supply, and have high demand (I'm looking at you, San Francisco) the price of housing dramatically exceeds the cost of construction.
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.
Going off on a tangent here:<p>There's a sci-fi novel I want to write some time...<p>You know how some countries have mandatory military service?<p>Well, what if all of the "Essential" jobs, all had mandatory service?<p>I want to do my own cherry-picking, selecting the "Essential" jobs, and especially those that are toilsome but that you can do with not a lot of training, and then do the math to see how many hours each able-bodied person in a country would need to do each job, in order to satisfy all of the needs of everyone in that society (able-bodied, or not.)<p>And then build up a story around some people who are finishing their Essential Jobs, and are deciding whether to Retire into living off the dole, or whether to transition into some Skilled labor to live in more luxury.<p>And then there's the fact that automation is making it so that less and less actual manual effort is required for the Essential jobs. So, does the society start categorizing new jobs as Essential, or do people end up with more discretionary time?<p>I feel like this would have made a pretty okay Star Trek culture to encounter...
I agree with the tone in the comments here - and the article. It is the land prices that drive prices.<p>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 years.<p>This is the only reason why I am not starting a family.<p>Times were different, housing was more affordable, but today everyone wants to live in the urban areas, the human population is growing, building standards increased, people can own land forever. In the city where I am living apartments were relatively affordable 20 years ago, today they cost twice as much.<p>If you ask me then I have to rather populist solutions for the housing crisis: 1) nobody can own land; land is property of the people and can only be leased for 75 year or so; 2) one apartment per head. Not more. 3) all profits from selling real estate are taxed 100%. Those 3 measures would quickly lead to a huge price drop and speculation would not make much sense anymore.
This article doesn’t even bring up construction unions which can hike construction costs by about 20%. IF they allow construction in the first place. SF and London Breed couldn’t get affordable housing off the ground because a proposal by non union modular housing company in Mare’s landing was not within the county.<p>+<p>[..] Builders say apprenticeship requirements drive up the already sky-high expense of affordable-housing construction in a state where it can cost as much as $700,000 a unit to build in dense, urban areas such as San Francisco. They also argue that the union-backed provisions could slow or halt construction of affordable homes in lower-income rural and inland areas where there isn’t enough available union labor.[..]
There was a fascinating conference filmed and on youtube at UCL on this subject (in my history, looking for it).<p>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.<p>And that's fair - no one wants to look like a chump. So any house building scheme to solve the housing crisis suddenly has this price built in, and thus any house building scheme immediately becomes too expensive to undertake.<p>There was a solution in UK in early 1950s. A 100% land value tax. If you bought land for 10k and sold it for 100k you owed the government 90k.<p>This quite simply took the heat out of the market, and allowed the government to invest in roads and schools and hospitals and so on. It mean that UK built two whole New Towns (widely seen as concrete monstrosities) but the point is they got built - enough new housing in a handful of years to create towns that still live breathe 80 years later.<p>If we want house building schemes we have the answer.
Almost nothing, especially with the cheap materials used in current modern construction (unless requiring some hurricane code; ex. South Florida). It's all due to zoning limitations, and homeowners voting in their own interests to keep the supply down, and values to rise.
Low rates have created a mechanism where large amounts of housing are built by corporations and entrepreneurs for rent. Most of them borrowed market funds at 1% or even less, often on 100% credit, or ~~2-3% or less mortgages and built condos, houses and apartments. There was such a shortage that this drove up prices - yet since people needed a roof overhead, they were forced to pay 40-50% of household income for rent. Managed in bulk by management companies these costs were low and yields of 5-15% were achieved. In addition, many were rented as AirBNB's in low vacancy areas earning 50%, but seasonable.
This is the cause - what is the cure? Home inflation and the Covid stimulus has ramped up inflation. The usual remedy for this is rates hike, but they are afraid that this will create a huge underwater home effect. Once this starts it can become a race to the bottom. Corporations will write off their equity losses, owners will get friend like bacon - they inch them up.
The call it Scylla and Charybdis - between two evils, as they sit, the bacon piles up... <a href="https://en.wikipedia.org/wiki/Between_Scylla_and_Charybdis" rel="nofollow">https://en.wikipedia.org/wiki/Between_Scylla_and_Charybdis</a>
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?
Prices on housing will not go down as long as people have access to money IMHO, and plenty are willing to pay up if it means 30-45 min less commute to work.
The price (of anything) is determined by one thing alone: how much someone is willing to pay for it. That’s it. The cost of building is not relevant in any way to that. Nicer materials, better design, etc. can make people willing to pay more, but if it’s too much they won’t pay.<p>The only one who the cost of materials matters to is the builder. If it costs them more to build than they can sell it for (within whatever % profit margin they want), then they simply won’t build it.
The price of construction matters considerably whether you're planning on building mass market apartments or condominiums. Most cities have explicitly different building codes based on the intended use of the dwellings, interestingly most of the time to avoid civil litigation with the city. Condos generally have much higher quality duct-work / fresh air exchange not to mention thicker walls, more sound dampening etc. All of this is more expensive, but the cost is passed onto the buyer and ensures the contractor isn't on the hook for tenants levying lawsuits against the architect / contractor / city that conducted inspections.
This sort glosses over the real percentage of construction costs by giving only a 20 or so percent of profit. A large portion of construction though is the individual sub-contractors profits. I would guess that the large difference in costs vs 100 years ago is proportional to the increased number of subcontractors. A hundred years ago a lot of lumber was even at least partially milled on site too.<p>The actual costs of real labor and real materials is pretty cheap. Even with the elevated building costs today you could still build an average home for sub $40,000 dollars if you control all aspects of the process.
I like the name construction physics. There's a lot of value to be unlocked throughout the whole construction process by figuring out where the inefficiencies are particularly in financing IMO.<p>There's this company called Shepherd or something like that that does build insurance and it's a fantastic example of how to make something meaningful.
I don't know anything about construction, but I do know that my landlord is based in cayman islands.<p>Why do we allow tax-heaven based shell companies to buy housing in areas where we officially declared a shortage, especially when we know much of that money is either stolen, or comes from dictators, or is doing tax evasion? It can't be helping the problem
im building a house and i got a bid from a foundation guy. he wanted 40k for a job that costs 10k in material. and i can easily do it myself. once i finish the house i will be able to offer a full breakdown of just how much you can save by doing it yourself.
To answer the question of the headline: Not at all. Once a house is built, the cost of building is a sunk cost.<p>> <i>if you could reduce the costs of construction, housing costs would fall as well.</i><p>Why? What drives prices down is <i>competition</i>. 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.<p>This whole argument sounds like arguing that we must reduce wages across the board in order to lower prices of goods. This never works.