[masraum]

Originally Posted by Superman

This deserves its own thread. I suggested that the additional cost of building large homes instead of small ones is very small compared to the increase in selling price, despite inflation in building materials. Someone disagreed, but did not offer any explanation other than "business degree." I have a masters degree in business and I just retired from a career as a wage statistician in the construction industry.

In the housing development next door, 49 lots are planned on less than 10 acres. That alone should tell us something. The land is expensive and they are building as many homes as they can. The homes barely fit onto their lots, and the homes are only a few feet apart. It took them a year to do the earthwork and site utilities. They only started building homes about 8 months ago. In other words, there was quite a substantial investment in land acquisition, planning, permitting and site work before any foundations were laid. So great are the sunk costs that the marginal cost of investing more money in labor and materials to make the homes large is minuscule by comparison.

In the eight months of actual construction, they have mostly completed twelve homes. There are rarely more than about 20 workers on site. 20 hispanic workers, probably getting about $30 per hour for eight months (about 1200 hours) means that the labor cost for building these houses is about $720,000, or about $60K per home. These homes will sell for about $600K each.

My point is that it makes sense to do what they are doing, which is building the most SF on the available land. It would not make sense to build 1500-SF homes selling for $400K each when you can spend an additional $50K per home, make them twice as big, and sell them for an additional $200K. Here is what they look like. You are seeing four homes here. The one on the left is the only single-story structure which will be built on this 49-parcel site.

The norm in the neighborhood where we lived near downtown Houston before moving to our current rural home was mostly small homes built in the 20s on ~5000sqft lots. Those old homes are mostly being sold at "lot value" (advertised seems to be ~$500k). Once those homes are torn down, that 5000sf lot is usually used to build two homes that are 2-4 stories tall. Some of the new homes are attached, but some are separated by 18-24". The new homes are (well, were, not sure today, but 2 years ago) $600-700k for 2 story, $750-850k for 3 story, and $850k-1.25m for 4 story.

I would not want to own or live in most of the new homes.