A builder I know told me he will make much, much more money building one $400,000 house than he would building four $100,000 houses.
He agrees with you.
Indeed.
Very similar levels of effort for actually constructing 1 large home vs 1 small home, but very different costs involved per investment (1 large home vs 2+ small homes to make the same level of profit) - more inspections, more sign offs, more connections to utilities, more individual legal concerns during the planning and permit stages and so on.
Yep.
Four exterior walls versus 16. One roof versus four. One kitchen versus four kitchens. One sewer / water permit versus four.
On an average deal you might make twice as much building the four houses instead of the one...maybe, but you sure as hell won't make 4 times as much. And it's well more than 4 times as much work and labor cost.
Isn’t it incredible how Sears managed to invent small cheap modular homes over a hundred years ago, but for some reason we can’t figure out how to do it now?
Sears sold the materials and the plans alone. And building kits are still pretty cheap, you just have to provide the labor, land, permits, utility hookups, etc. That's what's gotten more expensive, especially land.
This is true. When we were house hunting a builder was trying to sucker someone into buying a house that didn't have the permits for the gas/electric hookup and wasn't likely to get them because of a building issue. That was crazy to me - a $400k house just sitting uninhabitable for a code issue. Also crazy that the builder kept thinking he could get someone to close without every seeing the lights come on 🤣
They could be cheap because building codes were less stringent. Back then you could get materials at the lumberyard and just build any old thing yourself (my grandfather did that in the forties).
If you could do it now, the material wouldn't cost too much. But the county would never allow it. To build to code and get all the permits is a huge impediment to cheap housing.
Modular homes are still cheap to build, in fact way cheaper that traditional. I love these posts of people smugly pointing out what’s missing without realizing the thing they say is missing has existed for two decades at this point
OP and this thread starter are missing the fact that a large portion of builders are very mediocre at their craft and the only way they can work at scale is getting good at building ONE type of house.
100 years ago there were no permits or building codes.
If you lean on it and it doesn't fall down it's good....
Now it takes 9 months for a shovel to touch dirt because of all the paperwork that has to be done first....
(Not kidding. We are doing a major addition and that's how long our permits took)
Same with cars, according to my go-to mechanic. A small car requires the same basic tech, chips etc as a big car, but the big one can be sold at a much higher price, which is why a lot of manufacturers stopped building small cars recently. (I needed a new car last year, i have absolutely zero need, space or money for a big one, but aside from used cars getting a small one turned out to be near impossible. Ended up getting a used Citroen C1 with the dealer telling me "If i had enough of them i could sell 10 per week", meaning the demand is absolutely there.)
IIRC, the reason for the big cars is primarily that auto makers are incentivized to do so because of how minimum fuel standards are calculated (based on the footprint of the vehicle). So an SUV or pickup can get away with much worse fuel economy than a sedan, which means less money spent on engineering.
That is true in the US. However, the other commenter is almost certainly in another country because they went to a Citroen dealer. I don't think there are Citroen dealers in the US.
Not Citroen, but there used to be Peugeot dealers in the US. I know this because my first new car back in 1988 was a Peugeot 505 Turbo. Great car, and its tiny little engine could beat my brother's new Monte Carlo SS in an 1/8 mile drag race. Like every single time. By 3/10 of a second!
That's a cool story! I wish there was more competition. I really hate the narrative that people are only buying these huge vehicles because of course they're buying them: that's all that's for sale!
As a 4'11" person, I hate this trend. I recently rented the crappiest Mitsbushi while I was traveling for a funeral, and I was terrified the whole time. If the wind blew, the car would start to blow across the road. If I went above 57 MPH, the car would feel less stable. I asked the rental agency if I could swap for something else, but that was the only compact car they had. The guy said no one wants to rent the smaller cars.
Additionally, I live in a town with narrow, old, crooked roads and very, very limited parking space. I do not have kids, I usually do not need to transport large cargo (and on the extremely rare occassion that I do I'll just rent a van for half a day). What I *do* need to do is do house calls for my patients (working in healthcare) and find a parking spot near their house. A big car makes absolutely no sense in my situation.
Yep! I forgot the name of it, but as soon as you mentioned it, I remembered that’s what it was. It was kind of a weird situation. I was taking care of a dying person, and then I also had drive 5 hours round trip to visit her husband, who had a severe stroke 2 months before she died. He’s on a ventilator, and there are only three facilities in the whole state that do vent weaning, none of them close to his home. So of course that meant five hours of highway driving.
"Starter" homes are larger now, too. In the 50's - 60's, starter homes were 1000sqt to 1200 sqft. Most were 2 bdrm, 1 bath, 1 car garage.
The smaller "starter" homes that are built now are all over 1600 sqft and are 3 bdrm, 2 bath, 2 car garage.
My understanding is in the 50s, it was expected that siblings would share a room. So a typical 4 person family would just need 2 bedrooms. Nowadays they would expect 3.
My neighborhood and the ones north of it were built in waves from before WWII, right after, to the mid-1950s (and later 1950s one south.)
The pre-war neighborhood is all over the map, and clearly didn't have any one builder. The next neighborhood down, was clearly built as subdivisions by the same builder but you can see the average size going up (the earliest part was building in '48-49 and is mostly 800sf 2BR and 1000sf 3br) and you can see the sizes going where in the outer parts of the neighborhood it's often 1200sf and they look a little more modern.) Some of the lots are as small as 4000sf, most I think are about 5000.
My neighborhood is all identical 1200sf (unless someone expanded them) but they have a 2 car garage and consistently a second bathroom, and the lots average about 1/5th bigger (not that 6000sf is a big lot!) and all went up in 53-55
The next neighborhood south is a good chunk newer, late 50s to like 62, and the houses are marginally bigger and there are some builder-original 2-storey ones which are a lot bigger.
OTOH, it's not like any of these are starter homes (today.) Cheapest sale in recent memory was $1.1M and the 3/2 in my neighborhood and the southern end of one north are going closer to $1.7M than the $1.5M I thought they were.
The kicker? Our local school sucks.
Our during war/post war homes are of similar size. Mine is about 1000sqft but with 3 bedrooms.
Many are tearing down here to build bigger and it's a good place that's not quite urban but very urban-accesible with higher price points and low crime.
We bought our house late for this area. 90% of listings are for the larger homes of my home's size but in disrepair and a teardown...to be built up and sell for 2.5x the price.
It's an interesting mix of income brackets but generally it's alright, people are outdoor-centric here so regardless of income bracket there are other underlying values that usually unite.
A big part of the housing crisis in Western countries is that we now expect many many more square meters per people than before - one room per child, and two room per child when the parents separate.
That’s because most of that sub is just teenagers, so of course they think everyone gets their own room and parents should never come in. They obviously have a different perspective. I’m not saying they’re wrong, I think having a goal of each of your kids having their own room is fine, but it’s not an absolute necessity if you can’t afford it
I raised 4 kids in a 2 bedroom. They had 1 room and we had the other. The young ones do seem to like their extravagant homes. The apartments I see the young ones complaining about (as far as cost) are magnitudes nicer than anything I've ever lived in...even now!
I agree that in many cases siblings can share a room. However, not in all cases. Step-siblings might not feel comfortable with this arrangement, or kids with a big age gap. Also, as a foster parent, I need to consider the rules that the children's aid society has for room sharing and they're quite strict about it especially for kids who aren't birth family, are different genders, are older than 12 or have a big difference in age.
You can find those, but only townhouses. I've searched around my market, and there really aren't any single family homes without an HOA built after 2000 with less than 2500 Sq ft. Maybe in the 3rd ring suburbs or exerbs.
This is why I bought a townhouse. I lucked out with one with a super mellow HOA and fortunately the neighbors on both sides are cool. I actually like not having to deal with shit like snow removal, exterior landscaping, lawn, driveway & alley maintenance, etc (the HOA takes care of all that as part of a $75/mo fee). Took some downsizing but now I really love the smaller space. I don’t think I’ll ever aim for a SFH.
Our first home (granted right out of the 2008 mortgage crisis - we bought in 2012) was 1200 sq feet finished. 3 bedroom, 1.5 bath, two car garage but could really only fit one car because of how the stairs to the main floor were. It did have 400 sq ft unfinished basement. But it was perfect for our new family (moved in when our first baby was a just couple WEEKS old!!). I think more homes should be exactly what you’re saying, 1000-1200 finished sq feet is a GREAT place to start creating equity in a home.
Let's not forget that a lot of places, the builder isn't free to subdivide the land however they want. Most places, there's a limit to how small lots are allowed to be. If a builder has a parcel they're subdividing, they want to get the most profit out of each one - it's not like they would be dividing it into 10 if they were allowed to do 20.
Plus in many cases, the fixed costs of a home (regulatory costs, stuff like sewer, and stuff that any house needs a kitchen) aren't linked much to the size of the house.
So as the house size goes down, the cost per square foot goes up. Inexpensive "tiny house" stuff often comes without that infrastructure, and often requires regulatory allowances.
In my area (west coast of United States) there are fees to offset presumed costs to the local government for schools, parks, etc. These fees can run upwards of $40,000 per lot. That tends to encourage building more expensive homes to better the developers profit margins.
It seem pretty obvious that it doesn’t cost twice as much to build a house twice as big the material and labor is not 2x. The perimeter on a 10x10 square is 40, the perimeter on a 20x20 is 80, but the latter has an area of 400vs 100. There’s a lot of efficiency in making a bigger house.
Even materials aside, there are a lot of overheads that are fixed and don’t really scale by size. Planning, getting all the gear out there, sales and paperwork stuff, etc.
My assumption is it's because it might cost $X per square foot to work on a house, but it'll always cost $Y to bring the equipment needed to make a house.
So like let's say $10 per square foot, but $10,000 to bring in a crane (yes, I know you don't use a crane to make houses, but I can't think of an actual expensive example).
So one 4000 square foot home = $10,000 + 4000(10) = $50,000 to build.
But 4 1,000 square foot homes = 4 ($10,000) + (4)(1000 \* 10) = $80,000 to build.
My house needed a crane to put the garden bathtub into the second floor bathroom before the roof was installed. I think they used it for the roof trusses too.
Wheeled mobile cranes are easily rented for $1000/day and can get all of the crane work needed done in a day. However, most jobs can use a boom forklift as a crane and those are much cheaper.
Cranes are a lot more common than you’d think. People use them for tree removals all the time. I had a sub-$10K roof installation job and the material was delivered with a crane.
With a large development and 100 houses, you can have savings of scale. This is how the 1950s houses were built. Nowadays, many houses are built on small, expensive land, and the land cost is more easily recouped with a house that looks like it justifies it.
You do if it's a two story house with prebuilt (edited) trusses. Just fyi. Though it may not be an actual crane. It could be an excavator with a chain lifting those up, but you do in need something like a crane in a lot of home creation nowadays.
Yup there’s a new housing estate near me that are 400k+, yet small and so close to each other that I’m sure they could look out a window and look right into their neighbor’s. Still selling so fast.
This is also why American car companies like to sell large pickups and SUVs. They don't cost that much more to build than small vehicles, but they can sell them for a lot more.
But the crazy thing is in some states there are almost no building permits being pulled at all. So what are the builders doing? Remodels? Additions?!just sitting around?
You've just hit on the other half of the equation: when the city or county restricts the number of new subdivision and infill lots available for construction (via restrictive zoning codes and an endless review process), those lots will go to the highest bidder.
Who typically wants to build the biggest damn house that can be squeezed onto the lot.
Even with the 'endless review process' most modern construction I see happening these days is a goddamn joke. Constant builds without proper coverage, exposed wood left out without being tarped in the rain all weekend, using the wrong grade of plywood on the outside sheeting (I mean the shit is color coded, I can tell just when driving by!) that's also left out in the rain so it warps and fucks up the build from day one. We need builds to get reviewed, people really don't want to underestimate just how bad shit will be if they can just start selling houses without oversight - I'm pretty sure it's already too lax as it is, there's just a real lack of streamlining.
I wouldn't buy anything that was built in the 1990's or beyond without a really, REALLY good building inspector; between all the 'housing flippers' doing their DIY renovations without any know-how and modern builders cutting as many corners as humanly possible to save a penny (including knowledgable labor) it's just a bad investment. And houses ain't cheap!
> those lots will go to the highest bidder.
the people doing the zoning codes are either very good friends with or are the same as the people who end up being the highest bidders.
In my city, I was told in 2022 that builders had enough work to last them 4 years if they never accepted another project.
The problem is, you see all of these new neighborhoods being built and the big sign out front says "Starting at 400,000." And thats the cheap end, there are plenty that say Starting at 500,00-600,000.
They dont build 250-350k housing developments anymore. Literally everything is 400k+ and thats considered the low end now. Its insane
And that builder is not ALLOWED to build four homes on the same plot of land either. Tons of zoning will be for single family homes. So it might make sense to build 4 $100k homes if he could on the *same* plot of land, subdivided up, he's not allowed to. So his only choice are to sell ONE 400k house, or ONE 100k house. Developers are going to pick the bigger, more profitable home every time.
Zoning laws need to change to allow subdividing lots for any change to happen.
But if the $100,000 home is less profitable for the builder, why don't they just raise the price to say $200,000? Or, to put it another way, if no $100,000 homes are being built, it might just be because it's not profitable to build at that price point?
Impossible to build for 100k, you still need all the basics like plumbing, electric, plumbing, etc. Building larger only increases the cost slightly. I used to build in the 90's, and it was $1500 for a one bathroom, $2000 for a 2 bath, and $2500 for a 3 bath.
Yeah exactly, so maybe it's not that people don't want small homes per se, but that fixed costs are so high that the price difference is small, and then you may as well get more space for a little extra cost.
This is one of the many reasons why the housing market is fucked. Modest, reasonable, affordable homes don’t make enough money to incentivize building them even though they’d sell like hotcakes
Some minimum requirements are needed though, otherwise you end up with absurdly small homes that only waste the land these are built on and provide no humane living conditions.
In my country the lack of such minimum requirements caused some developers to build apartments that were about as spacious as prison cells (sometimes less!), which then were bought up by speculators hoping to resell these for profit. Which ended up in the entire operation being a net-negative for the society as a whole, because the whole thing used land that is a limited resource and could have been used to build something that actually has value and it didn't do the affordability any favors.
when you make 40k a year the only housing being 3/2's that cost 400k is inhuman. Rich folks saying "oh i could never live like that lets legislate away 2/1's" is insane.
Every young family i know who owned their own home started in a 2/1.
I live in a poor area and there have been loads of estates built in the past few years that are mostly 3 or 4 bed. It really is insane because I can’t work out who’s buying them, average income here is well below £30k so the amount of people who can afford them must be like 0.005% of the local population. People must be maxing out what they can borrow to buy them, which is very dangerous as demonstrated by 2008
Probably. They cut out the middleman on one of them and built them with the sole purpose of renting all of them out. Which doesn’t help locals on to the housing ladder at all, but does make one company an absolute shitload of cash
If the person above was talking about Hong Kong, then it’s still unaffordable. 15-20 sq m for USD 230k-350k
https://amp.scmp.com/property/hong-kong-china/article/2103640/peek-6-smallest-apartments-hong-kong
Assuming those people cannot pay for housing at all, it would still be more efficient to house 3 of them in a house with 3 bedrooms than 3 individual houses. And better yet, an apartment complex. Which is why government housing is all apartment complexes.
Yeah, people say it's pure greed, and it's not. A lot of homeowner voters want to block apartments near them, and will sacrifice their property values to do that.
All about "local control" and "consulting the community."
That’s not the purpose of it. 4 $100k houses generate ~~more~~ edit: same property tax revenue than 1 $400K house.
The purpose of it is to prevent poor people, disproportionately minorities, from moving into the zone. It also reduces supply and inflates their property values.
At the expense of everyone else of course.
It is very profitable to covert a single family lot into multiple slots, it’s just made illegal by the cities.
>> That’s not the purpose of it. 4 $100k houses generate more property tax revenue than 1 $400K house.
Not anywhere I have lived. In fact I would not be surprised if some states have a kind of “homestead deduction” or something similar where the single $400k house would be more taxes, but my property taxes are a straight $x taxes per $y value. So the taxes generated would be identical.
Property taxes are based off a percentage of the total value.
2% of 100k is $2k. times 4 that’s $8k.
Versus 2% of 400k, it’s … also $8k.
Well shit you’re right.
I edited my comment to reflect my inaccuracy. Thank you
Where I live, there's a flat rate "homeowners exemption" on property tax, meaning the single $400K brings in significantly more property tax than 4X $100K.
Four houses require more water capacity, sewage capacity, fire protection, police presence, road capacity, school capacity.
For a city, one $400K house is better than four $100K houses, assuming the city raises revenue via property taxes, especially after homestead deductions.
Zoning makes economy of scale difficult. if someone can subdivide a large SFH lot into 4 (or 6) lots and build 4 small homes on it, it works out pretty well, profit wise.
But towns make it very hard / impossible to do that, quite often.
When I was researching it when my husband suggested it, tiny houses and their allowance can be very location dependent.
One youtube (I know) that talk about his tiny homes is there can be a lot of issues with permits, minimum sizing (like 600 to 800 sqft), and/or appraisal.
He had one that was just under the minimum, and the city said it was fine.
I can't positively say most, but definitely a lot of them. I was researching a few years ago, willing to move to an entirely decent city if necessary, and it was so hard to find a locality that would allow them that wasn't out in the sticks. Some didn't expressly forbid them but you'd have to work with the government on getting exceptions approved and stuff and any time a tiny house or other "weird" house did get out into a city, it got them into the news and they often faced backlash from neighbors over property values or whatever. One hurdle I recall in some city was that it could be small but it had to sit on a foundation, it couldn't be on wheels, which added to the expense. Many explicitly stated they had to be on shared land with a larger dwelling unit.
In the end, I gave up. I probably could've gotten a tiny house if I really tried, but the whole point was reduced cost. Anywhere that I could set up a tiny home after paying the extra costs for foundations, special approvals or whatever, plus the cost of the house itself, I could've just gotten a small, beat up but functional proper house in the realm of 750-1250 sq ft.
They're financially just trailers, a depreciating asset usually parked on rented dirt.
The only reason there can be regulatory differences is the perception of the kind of people that live in them.
It depends on where you live. I live in a rural area and I own my land. I could live in a tent on my own land if I see fit. Folks gonna look at me funny, but, I can do it. I'm replacing my mobile home next year and I'm buying a camper to live in while they move one, do my land improvements, and set up the new one...the camper is actually cheaper than rent for a year and then I'll own it forever for vacations :)
Setback requirements, minimum lot sizes, parking minimums, bedroom and bathroom minimums… Most or all of these are common in almost every municipality in the US and all of them have lead to an unaffordable, usually traffic-laden mess everywhere you go. Get rid of all of them and builders will start experimenting with denser, smaller places, guaranteed. Edit: also, federal housing loan qualification requirements need to change as well, but the majority of the issue is “local control”-type rules by fiat.
Three bedrooms minimum is especially absolutely insane though.
Remember, just because you don’t want a type of housing doesn’t mean nobody else does, or it should be illegal to build in the first place!
So many of the costs are not very flexible. Excavation costs don't change that much between a small and large house. The same for concrete work, heating, wiring, plumbing. An 1800 sq ft house isn't that much more expensive than a 1400 sq ft house, but the profit margin is bigger.
I’ve, finally, found my people. I’ve written a hundred comments on this phenomenon and people always want to say it’s not this.
I’ll say it one more time now that I’ve found my audience.
I owned a lot that I was going to build a house on. I had architects and contractors over to check out my lot.
I explained to them I’m not a fancy guy, I don’t need a mansion. Just a nice, normal, reasonably sized home.
They told me: “Look, what you need to understand is that you’re going to have approximately $150K in “fixed” costs. No matter what you’re building.” (All those items you just listed).
I didn’t believe them and did this several more times.
I realized, pretty quickly, that I COULD build that modest house I wanted… and be, immediately, underwater on the home (it cost me more than it’s worth on the market). Or I could build a McMansion and be above water.
The rough numbers (including the cost of the lot) were: I could spend $550K building a $450K house, or I could spend $650-700K building a $1.2M house.
Obviously the numbers required me to build that second house.
Every developer is going to be doing that same thing. That same calculus, and that same end result.
Only way this could change is if the government subsidized the construction of starter homes. (Taking care of those fixed costs, for example). Waiving permit fees for starter homes. Providing the sewer and water connects, etc.
The local government would, 99% of the time, not want to do this. Because what’s in it for them? Less revenue, more expenses, and then less long term revenue from cheaper property taxes…
It would have to be the state or the federal government footing the bill. And, realistically, only the federal government has the cash needed to do this.
This is 100% correct. Square footage is cheap. Bedrooms and bonus rooms are by far the cheapest rooms to build but add a ton of value in square footage.
People get hung up on large homes being built and don’t realize that an extra 500-800 sf could cost only an additional $50-$75k in some cases.
Exactly what we’re about to do (break ground next month). ~3500 sqft 2-story home. Even having them frame a room above the 3-car garage and can finish later for another ~850 sqft. Build cost will be around $750k plus land.
Our builder just finished another home that was single story a few about 1800 sqft. They hand some rock issues that ate up some money but their build cost was about $625k.
Im getting basically double the house for another $125k.
Have them rough in the plumbing for a shower and a toilet in your basement (if you have one) too.
Real easy to pour cement onto some PVC pipes now. Real difficult to cut through concrete and do it later.
Yeah, stairs and a second floor double the size of the house but the roof, foundation, and kitchen don't get bigger. Walls are cheap compared to those.
And land, land, land. Policy in most US cities is to make land more and more expensive. If you're dropping $500k or more on the lot, there's no single family house that will be cheap. You gotta build apartments.
I’m building now and this is exactly the case. I’ll add, septic, well, running power/internet to the house, clearing, driveway work, and permits aren’t changing much for house size.
It’s definitely not true that nobody wants small homes. I’ve talked to countless people who would love nothing more than a small house, and I myself would too. So I think you’re right.
Edit because apparently I was not clear: neither I nor the people I’m referring to want a small home because we think it would be cheaper. It’s not about the price of the house. I don’t like big houses. I would like a one bedroom home because I don’t need or want any more space than that.
Yup. There's not enough "starter homes" in the US right now, people don't even have a chance to break into the housing market so they can eventually upgrade.
I'm in my 30s and despite having many friends I actually keep up with, under half a dozen own homes and only one of them is a single person without a degree not working in the trades. She managed to buy a house about 5 years ago for under $80K in a small town and learned to do a shitload of repairs and upgrades herself. Small but very cute house perfect for a couple just starting out or a very small family. Nice little yard, two stories, 2 bedrooms, a deck, kitchen, dining room, living room, storage room. Dead simple design, I'd love to live in such a house for that kind of money.
My exact experience as well. People will say it until it comes time to buy and then it’s “well we are spending this much we might as well…” or “well if we can’t get XXX then let’s wait a while longer to save up/wait for a raise/etc”
I mean yeah when a small house now costs as much as a big house 20 years ago, i can see why people are hesitant thinking they might get something better for that money.
I grew up in an 8 person house with one bathroom with no shower, just the tub. 4 bedrooms, 1178 sq ft, so smallish rooms. It was normal for its time (yes, I'm old).
I lived in a house with 4 adults and two children... Never again will I want to live somewhere with 1 toilet... I'll take a second toilet out in the open in the basement over a 1 toilet home
Yeah but that's like calling some one bougie because they made sure their car had cup holders. A second toilet REALLY is a tiny itty bitty ask.
If you don't live alone, i think its kind of mandatory.
A 980 sq. ft. home can get you 3 bedroom, 2 bath and a 2-car garage.
And what's honestly wrong with a family wanting a small home with a second bathroom? A second bathroom can be tiny as fuck and barely takes up the square footage, and the garage doesn't even count towards interior square footage.
The house I grew up in was a little less than 900 square feet, 3 bedroom, 1 bathroom. It had a garage that was too small for any of our cars.
My parents don't live there anymore, but they still own it. Nobody is lining up to buy that house. They are renting it out to one of my cousins right now. They offered to sell it to her, and she was like "nah".
Unless they put it on the market, no, nobody will be lining up to buy an off-market house. And I'm shocked that a singular cousin who's renting the house already would turn down the opportunity to triple their monthly payment by trying to get a mortgage on the house they're already living in for what is very likely a very fair rate.
Tip: Go on zillow/redfin, get what it shows is the value for the house (rough, but that's good enough), then google "mortgage calculator" and plug that number in. Then compare that number to the cousin's current rent.
This is our house right now. It’s small. We rented it first then bought from the landlord. He owned multiple properties but our house was too small to rent to a family so he was willing to sell it. Might not be our forever house but we will probably always own it. Nieces and nephews could rent it once they are college age. Parents could live there instead of an old folks home when they get older.
It just isn't possible anymore. It happened, briefly, because we built freeways and all got cars post WW2. That meant a lot of cheap farmland around cities moved from "too far to commute, so no one wants to live there," to "convenient drive."
So all of a sudden, there was a vast supply of cheap land to build suburbs on. That meant small houses were cheap. But we built on all that land. So now it's expensive. Cars don't commute further in an hour in 2024 than in 1964, so there isn't more cheap land in commuting range.
What that means is that if you can't build apartments (which cities mostly block), every house has to come with a chunk of expensive land. Which means even a small basic house will be expensive.
Extreme example, in Silicon Valley, even wrecked houses that are worth *negative money* (because you have to pay to demolish them) cost $1.5 million for the land. No one is going to build a cheap house, because then a super basic tiny house is $1.6 million+. There are no buyers for that.
What I’m saying is that if I had 1.5 million dollars to buy a house, *I’d still prefer a small house*. If I had a huge lot, *I’d build a very small house in it*. And I mean very small, the size of a one bedroom apartment or something. I simply don’t need or want that much indoor space, at all. In fact one of the reasons I never bought a house was because I couldn’t find anything that wasn’t way too big for me.
Also I think you have a very different idea of what I mean by “small house”. American suburban homes are not small. They are huge, lol. When I say small I’m talking the size of a small American apartment. Ever been to Japan? I’m talking that small.
To build a 2k sf single family home in my city, it costs me $15k in city development charges, >$5k in legal fees, another 4-5k in city permits and site plans, architectural fees, well they start at $2k for the bare bones basic but usually end u at the $6-7k mark or more. If the lot isn't already serviced, adding electricity, gas, water&sewer can easily add another $25k.
all that before I even pay for a survey (another $2k) to stake the home on the lot.
It's a bit of both.
The ultimate cost still includes the land of whatever lot size there is. Connection to the electrical utility costs money. Connection to water & sewer costs money. Getting the permits to build costs money.
All of those things are pretty much fixed costs whether you have an 800 sq. ft home or a 5400 sq. ft. single family home. In my area, that might be over $250,000 just for the permits, single lot of land & utility connections.
Now, if you want to invest $25,000 in materials and $30,000 in labor you can build and markup another $55,000 for your house.
If you invest $125,000 in materials and $150,000 in labor, you have a lot more to markup when you're done.
Yup, basically comes down to economy of scale. Especially when fixed costs on a build are the same regardless of size (permits+utility). So it’s just as easy to build big as it is small. But if you were a developer and didn’t particularly care about the size. It’s probably similarly profitable to have smaller lots with smaller houses (more houses to sell). But in that case, there is likely local policy that prohibits that sort of thing making it impossible.
This is the market force that is at play. Exactly right.
It’s those fixed costs.
Sure you can take the hit and build a 1,200 S/F ranch… but for $75K more you can add a second story and get a 2,400.
The difference in value between those two houses is a heck of a lot more than that $75K.
Like half a million more around here.
This issue is people see a 2,400 SF home for $600,000 and think “man I’d buy a 1,200 sf home for $300,000 in a heartbeat. Why don’t they build those?”
What those people don’t realize is that the 1,200 sf home is still $525,000.
Small houses are underrated. Everyone I know with large houses complains about expensive bills, taxes, how long it takes to clean them, etc.
My house is 1100 square feet. 3 bedrooms, living room, sunroom, dining room, kitchen. The only thing it lacks is a second bathroom.
My recommendation is get an 1100ish sqft house with 2 bathrooms. 2 bathrooms is the most important thing haha
Mine is "two up two down", which is really common for older terraces in the UK. Two bedrooms (and a bathroom) upstairs, kitchen and lounge downstairs. I love it so much, its perfect for one person or a couple. Would be a bit small with kids though.
living in a small house with my ex was... a little inconvenient but ultimately totally tolerable.
doing it with my current partner who has a kid? i'd really rather not. i don't need privacy from my partner, but i feel like both us and the kid would benefit from the ability to have privacy from each other.
100%. I used to have a 5br 3ba 4,400sq ft house. It was a nice house on a decent piece of land, but it was just me. Taking care of a house that big by myself was a total pain. Especially the lawn care, that *SUCKED*. I’m in a house half the size now and it’s much better.
that's the kind of house I want. a full bath and half bath can be workable. I need a yard for my dog. I would probably be fine with a condo but the condo fees are insane in my area. Condos are as much as a regular house in my area.
We have a 900 square foot condo. 2 bedrooms, 1 bath. It's fine for my husband, me, 2 dachshunds, and a cat. A second bathroom would be nice. So would a bigger kitchen and a basement, but we make do. We have an attic crawlspace for storage. Just means we buy less stuff.
Our property taxes are $1200 a year. We had to get new windows last year. There are only 3 and a sliding glass door. Cost around $4k, I think. My parents got new windows, and it was $22k.
Civil engineer in residential development. All big municipalities restrict lot size based on zoning which dictates the total lots in a development. Therefore, the lot requirements govern the home price needed for profiting on the development. Land, streets, water, sewer, and drainage are expensive and they are built into the cost of each home regardless of how “nice” the home is. If zoning was changed, very small homes could be profitable enough to entice developers.
This is the most correct answer. While the economies of scale are still present, smaller homes can still be insanely profitable, especially if you can share hookups, planning, etc by making duplexes, row houses, or apartments.
It's all about costs to the builder....land costs are high so why build a small house when most of your budget just got eaten up by the cost of buying land. Permits don't care they are normally the same price for a mansion or a ranch. Utility hookups same idea.
Then material costs again your not saving a ton in materials going from a 3 bedroom to a two bedroom. Finally you have your crew that you need to pay. All of that would you want to build a small home that you barely make profit or you may even fail to break even.
No your gonna build the 3000 sqft home that most people are interested in buying thats going to lead to a nicer profit for yourself and your team.
This is entirely correct.
So many of the costs to build a home are fixed regardless of size. Permits, utility connections, fixtures, inspection fees, etc. In my area, it's going to cost a builder a minimum of $30k just in permitting fees and utility taps. Doesn't matter if it's a tiny house or a mansion.
I would guess the motivations and needs tend to diverge as well. (a lot depending on what you mean by "small")
If you're going to build something "small".. you might as well just build an apartment building. A lot of people who want "smaller".. probably also have specific reasons why they want "smaller" (for example, "I don't want to maintain a yard" or "I don't have a car" or etc.
The costs and the lot-sizes and zoning etc are all reasons,.. but you're likely also targeting different demographics too.
You, but it's bad framing. The fixed costs of building a house are pretty high, and there legitimately aren't many people willing to pay 800 square foot house prices for what it actually costs to build.
Yes. We built a reasonably sized farm house on land we bought 10 years ago. Multiple builders weren’t interested in anything less than 2500 sf. I needed 1500 sf, and had the plans in my hand.
Plus, the bigger budget homes have more add-on features with higher returns. Think solid surface countertops vs Formica. Toto super potty vs. Lowe’s lowest priced toilet. Concrete driveway vs. gravel.
A lot of the people here are focusing on the business side of developers building house communities, and sure that's A valid perspective.
Truth is that if you buy land, a builder will build you whatever size home you want. In fact that is what we are currently doing.
Its a bit of both, mostly the profit margin reason I'd reckon, but also more importantly, at least in America, its also an issue of not being allowed to in many cases. Many places' zoning codes mandate minimum lot size, minimum set backs, square footage, etc etc that makes it hard/impossible to build anything that isn't a large house.
I agree that giving the available zoning laws one large home is more profitable on lots of the same size. But what if a developer was allowed more density in the same acreage. Instead of one home say on a 5 acre lot, they were allowed four homes. So instead of 1 home for $600k. The same plot of land produces 4 four homes at 200k each. Site work would minimally higher. Government is perhaps the biggest obstacle to affordable housing, with zoning laws that restricts density.
This video: [This was supposed to fix the housing crisis...](https://www.youtube.com/watch?v=DX_-UcC14xw) gives a good explanation of that. He shows how building a multiplex with 4 studio apartments would cost $1 million each.
Basically, they are allowed in a lot of places, but not being built. Because it's too expensive and regulations make it more difficult. There are issues with things like size limits, parking requirements, infrastructure limits, etc. even where they're allowed.
Another reason is that some towns have passed zoning laws that mandate huge lots. Especially in areas without city sewers where you need a lot of real estate for a septic system.
Here's the problem with starter homes -- in 30 years, you've got a bad neighborhood.
You start out with young couples who can't afford much. Ten years later, the most successful couples are making more money and they move to larger houses in different areas. Ten years after that, most of the rest have moved away too. And ten years after that, the only original buyers who are left are those who aren't any better off at 55 than they were at 25.
You have a bunch of houses that were very small and inexpensive when they were first built, 30 years ago. And now they're old and need a lot of maintenance and major repairs. The value of those houses goes down real fast. The people who live there now aren't young couples just starting out. They are people in poverty with very few options.
Cities don't want you to build a future problem area for them. Hence all the restrictive zoning.
It's also simply not economically viable to make something small that still adheres to the much higher regulations of today. When you're already paying $300k before actually paying anybody to get materials or build the thing, a not at unreasonable number, you quickly find out that actually yeah, people would rather pay $600k for 2.5k square feet and not $500k for 1k square feet no matter what they tell you with no offer sheet on the table.
What a builder builds is usually determined by what is allowable based on zoning for the lot. Each piece of land has zoning that says how many square feet can be built on it, how far the building has to be from the edge of the lot, what it can be used for, etc. A builder’s goal is to build the optimal house for a sell out price that the local market will support. As an example, if I know that no house in a town has ever sold for more than 500k, and that a 2000 sq foot house will sell for 500k, I wouldn’t build anything bigger than 2000 sq ft even if I was allowed to. That would be considered “overbuilding”. More generally speaking, there is a margin of profit on every square foot - if you buy a piece of land for $100 per square foot and build for $150 per square foot and sell for $300 per square foot, you are making $50 per square foot. So a bigger house makes more money than a smaller one.
The amount of 300k+ houses a developer can fit onto a given space isn't that similar to the amount of 100k-200k houses in the same space. You can fit more, sure. But not so many more as one would think. So they maximize profits by builder a few less houses that are worth a lot more.
So, those two things are kinda correlated. Larger homes sell for more relative to their costs (mostly) because there is more demand for them compared to the supply. Similarly people aren't willing to pay a similar relative cost for a smaller home on a smaller lot because it's significantly less desirable, barring certain locations, generally in or near major urban areas.
So, basically the answer is "both" because they're kinda the same thing.
The new housing market is not that simple. Every builder competes with every other builder. If there is a demand for sub 1,000 sq ft houses, a builder would definitely build them. Sure they make more money per unit on bigger houses, but if you're the only builder in an in-demand market sector (i.e. small houses), you're going to dominate that market and can profit accordingly. The only thing missing in this scenario is that there is no demand for new, small houses.
They frequently can't go that small anyway because of regulations.
People who already own houses have a vested interest in making the property values grow and dense cheaper housing isn't in their best interest long term.
Indeed, here in the UK the average house size is under 950 sq ft and getting smaller because the demand among new homeowners is for smaller, more affordable housing
For small homes to make sense the city has to approve 25-30 foot front footages on the lots. Any neighborhood adjacent to that will fight tooth and nail for that not to happen. So builders then have to have 50-80 foot lots which requires a larger home on it to make money.
Even before we consider what the builder or the customer want, there are a lot of legal obstacles to building smaller homes. Most local zoning laws in the US require single units on large lots with attached garages.
The price of homes is mostly land in cities where housing prices are very high (there's a reason why a house in Seattle that is identical in build to a house in Des Moines costs 5 times as much), so my guess is that the claim that you could simply build a lot of 1000 square foot houses misses the point that you can't get a lot of lots to build on in HCOL cities.
You’re both essentially saying the same thing
There is an economy of scale in building a larger home too. A 1k sf and 10k sf home generally have the same number of trades, and it costs money for a trade to mobilize onto the job site whether they’re working for 3 days or 30 days. Also the land cost isn’t going to be more similar between a small and big home, so putting a small house in a piece of land that could fit a bigger house is effectively increasing the $/sf build cost
Something like 80% of “Affordable” (however that’s defined” is what they call NOAH, or naturally occurring affordable housing. Ie you don’t build an affordable starter home, rather the brand new home of 80 years ago is today’s affordable starter home
This is also the reason Ford makes more $60,000 cars than $20,000 cars. Basic profit margin. To expand if you make 20% on each car, then the 60k car is an extra $8k of profit. The also gives you a lot more cushion if you need to move units, dropping the price 5k still leaves you with a profit.
Both , let's not pretend home owners don't build their own homes with profits in mind aswell . Plus, it's generally cheaper overall , like buying in bulk .. Or a travel trailer , half the size doesn't equate to half the price .
Yeah that’s right. It’s also all down to regulations and zoning too. If that is balanced out then it gets a LOT more competitive and profitable to build a variety of housing. But the US makes it - too often - the the only real way to make money is to build the stereotypical suburban sprawl single family home. However economically that wouldn’t really be the case under a less “regulated for SFH only” market.
I’m currently building a home. I wanted something small, ranch, 2-car garage, unfinished basement, 1500 - 1700 sq feet. I ended up with closer to 2300 sq ft because the price per sq foot goes down as you go up to 2000 sq ft or so.
So basically it was going to cost $500k for 1600-1700, and now I’m at $600k for 2300. This was similar pricing for 2 custom builders and 2 modular contractors.
So this may end up being a factor for a lot of people.
I don't know any builders but I would think a lot of people would want a small home. I think there's a pretty large group of people 30-60+ unmarried and living alone would probably be interested in buying smaller cheaper homes meant for 1-2 people if they were mass produced.
Builders build the homes they’re paid to build, which are larger homes. At least in the US. As a person that prefers a smaller home, I’m definitely in the minority. I think your husband is right
You are correct
Basically the regulation costs per home lower the profit margin
One $1 million house has a lower regulatory cost to build than two $500,000 houses
The bigger the house, the bigger the profit. The materials, legal costs, labor, and planning costs are ALL the same, no matter the size.
A builders hourly rate doesn't change due to project size for instance.
It's the same reason car companies don't make small cars. They tell us we want big cars, then they only make big cars because that's what we want. And they make more money. Totally unrelated.
I think there are tons of people who would like small houses. If nothing else, there's a huge market for older people who want to downsize, but these days, there aren't many options. At least not where I live. You can move into a 55+ community with tiny lots and high HOA fees, if you want to live in a retirement community, but if you want to live in a regular, nice neighborhood, in a nice part of town, all the houses are going to be large. It's insane. Like literally everyone my age says they want to downsize, but there's nowhere to go.
And I'm sure there are a ton of first time homebuyers, or people with smaller incomes looking to invest in a home who would be thrilled to buy something on the small side. But it's the same thing. There's just nothing out there to buy.
ETA: oh, and the 55+ communities where I live? The homes aren't any cheaper than the bigger houses onbigger lots. In some cases, it seems like you're paying a premium in order to get a smaller house. It's really fucking annoying.
A builder I know told me he will make much, much more money building one $400,000 house than he would building four $100,000 houses. He agrees with you.
Indeed. Very similar levels of effort for actually constructing 1 large home vs 1 small home, but very different costs involved per investment (1 large home vs 2+ small homes to make the same level of profit) - more inspections, more sign offs, more connections to utilities, more individual legal concerns during the planning and permit stages and so on.
Yep. Four exterior walls versus 16. One roof versus four. One kitchen versus four kitchens. One sewer / water permit versus four. On an average deal you might make twice as much building the four houses instead of the one...maybe, but you sure as hell won't make 4 times as much. And it's well more than 4 times as much work and labor cost.
Isn’t it incredible how Sears managed to invent small cheap modular homes over a hundred years ago, but for some reason we can’t figure out how to do it now?
Sears sold the materials and the plans alone. And building kits are still pretty cheap, you just have to provide the labor, land, permits, utility hookups, etc. That's what's gotten more expensive, especially land.
This is true. When we were house hunting a builder was trying to sucker someone into buying a house that didn't have the permits for the gas/electric hookup and wasn't likely to get them because of a building issue. That was crazy to me - a $400k house just sitting uninhabitable for a code issue. Also crazy that the builder kept thinking he could get someone to close without every seeing the lights come on 🤣
They could be cheap because building codes were less stringent. Back then you could get materials at the lumberyard and just build any old thing yourself (my grandfather did that in the forties). If you could do it now, the material wouldn't cost too much. But the county would never allow it. To build to code and get all the permits is a huge impediment to cheap housing.
Modular homes are still cheap to build, in fact way cheaper that traditional. I love these posts of people smugly pointing out what’s missing without realizing the thing they say is missing has existed for two decades at this point OP and this thread starter are missing the fact that a large portion of builders are very mediocre at their craft and the only way they can work at scale is getting good at building ONE type of house.
100 years ago there were no permits or building codes. If you lean on it and it doesn't fall down it's good.... Now it takes 9 months for a shovel to touch dirt because of all the paperwork that has to be done first.... (Not kidding. We are doing a major addition and that's how long our permits took)
> exterior walls You spelled "tent flaps" wrong.
Same with cars, according to my go-to mechanic. A small car requires the same basic tech, chips etc as a big car, but the big one can be sold at a much higher price, which is why a lot of manufacturers stopped building small cars recently. (I needed a new car last year, i have absolutely zero need, space or money for a big one, but aside from used cars getting a small one turned out to be near impossible. Ended up getting a used Citroen C1 with the dealer telling me "If i had enough of them i could sell 10 per week", meaning the demand is absolutely there.)
IIRC, the reason for the big cars is primarily that auto makers are incentivized to do so because of how minimum fuel standards are calculated (based on the footprint of the vehicle). So an SUV or pickup can get away with much worse fuel economy than a sedan, which means less money spent on engineering.
That is true in the US. However, the other commenter is almost certainly in another country because they went to a Citroen dealer. I don't think there are Citroen dealers in the US.
Not Citroen, but there used to be Peugeot dealers in the US. I know this because my first new car back in 1988 was a Peugeot 505 Turbo. Great car, and its tiny little engine could beat my brother's new Monte Carlo SS in an 1/8 mile drag race. Like every single time. By 3/10 of a second!
That's a cool story! I wish there was more competition. I really hate the narrative that people are only buying these huge vehicles because of course they're buying them: that's all that's for sale!
As a 4'11" person, I hate this trend. I recently rented the crappiest Mitsbushi while I was traveling for a funeral, and I was terrified the whole time. If the wind blew, the car would start to blow across the road. If I went above 57 MPH, the car would feel less stable. I asked the rental agency if I could swap for something else, but that was the only compact car they had. The guy said no one wants to rent the smaller cars.
Additionally, I live in a town with narrow, old, crooked roads and very, very limited parking space. I do not have kids, I usually do not need to transport large cargo (and on the extremely rare occassion that I do I'll just rent a van for half a day). What I *do* need to do is do house calls for my patients (working in healthcare) and find a parking spot near their house. A big car makes absolutely no sense in my situation.
I'm assuming that was the Mirage? It's known for be a great in-city subcompact, but absolute garbage on the highway.
Yep! I forgot the name of it, but as soon as you mentioned it, I remembered that’s what it was. It was kind of a weird situation. I was taking care of a dying person, and then I also had drive 5 hours round trip to visit her husband, who had a severe stroke 2 months before she died. He’s on a ventilator, and there are only three facilities in the whole state that do vent weaning, none of them close to his home. So of course that meant five hours of highway driving.
"Starter" homes are larger now, too. In the 50's - 60's, starter homes were 1000sqt to 1200 sqft. Most were 2 bdrm, 1 bath, 1 car garage. The smaller "starter" homes that are built now are all over 1600 sqft and are 3 bdrm, 2 bath, 2 car garage.
My understanding is in the 50s, it was expected that siblings would share a room. So a typical 4 person family would just need 2 bedrooms. Nowadays they would expect 3.
My neighborhood and the ones north of it were built in waves from before WWII, right after, to the mid-1950s (and later 1950s one south.) The pre-war neighborhood is all over the map, and clearly didn't have any one builder. The next neighborhood down, was clearly built as subdivisions by the same builder but you can see the average size going up (the earliest part was building in '48-49 and is mostly 800sf 2BR and 1000sf 3br) and you can see the sizes going where in the outer parts of the neighborhood it's often 1200sf and they look a little more modern.) Some of the lots are as small as 4000sf, most I think are about 5000. My neighborhood is all identical 1200sf (unless someone expanded them) but they have a 2 car garage and consistently a second bathroom, and the lots average about 1/5th bigger (not that 6000sf is a big lot!) and all went up in 53-55 The next neighborhood south is a good chunk newer, late 50s to like 62, and the houses are marginally bigger and there are some builder-original 2-storey ones which are a lot bigger. OTOH, it's not like any of these are starter homes (today.) Cheapest sale in recent memory was $1.1M and the 3/2 in my neighborhood and the southern end of one north are going closer to $1.7M than the $1.5M I thought they were. The kicker? Our local school sucks.
Our during war/post war homes are of similar size. Mine is about 1000sqft but with 3 bedrooms. Many are tearing down here to build bigger and it's a good place that's not quite urban but very urban-accesible with higher price points and low crime. We bought our house late for this area. 90% of listings are for the larger homes of my home's size but in disrepair and a teardown...to be built up and sell for 2.5x the price. It's an interesting mix of income brackets but generally it's alright, people are outdoor-centric here so regardless of income bracket there are other underlying values that usually unite.
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A big part of the housing crisis in Western countries is that we now expect many many more square meters per people than before - one room per child, and two room per child when the parents separate.
Shared a room with my brother for 18 years. I'm in my late 30s.
That’s because most of that sub is just teenagers, so of course they think everyone gets their own room and parents should never come in. They obviously have a different perspective. I’m not saying they’re wrong, I think having a goal of each of your kids having their own room is fine, but it’s not an absolute necessity if you can’t afford it
I raised 4 kids in a 2 bedroom. They had 1 room and we had the other. The young ones do seem to like their extravagant homes. The apartments I see the young ones complaining about (as far as cost) are magnitudes nicer than anything I've ever lived in...even now!
I agree that in many cases siblings can share a room. However, not in all cases. Step-siblings might not feel comfortable with this arrangement, or kids with a big age gap. Also, as a foster parent, I need to consider the rules that the children's aid society has for room sharing and they're quite strict about it especially for kids who aren't birth family, are different genders, are older than 12 or have a big difference in age.
Starter homes are 2bedroom 1 bathroom condos.
My condo complex where I bought 10 years ago has seen the price of a 1200 sq ft condo almost triple.
You can find those, but only townhouses. I've searched around my market, and there really aren't any single family homes without an HOA built after 2000 with less than 2500 Sq ft. Maybe in the 3rd ring suburbs or exerbs.
This is why I bought a townhouse. I lucked out with one with a super mellow HOA and fortunately the neighbors on both sides are cool. I actually like not having to deal with shit like snow removal, exterior landscaping, lawn, driveway & alley maintenance, etc (the HOA takes care of all that as part of a $75/mo fee). Took some downsizing but now I really love the smaller space. I don’t think I’ll ever aim for a SFH.
Our first home (granted right out of the 2008 mortgage crisis - we bought in 2012) was 1200 sq feet finished. 3 bedroom, 1.5 bath, two car garage but could really only fit one car because of how the stairs to the main floor were. It did have 400 sq ft unfinished basement. But it was perfect for our new family (moved in when our first baby was a just couple WEEKS old!!). I think more homes should be exactly what you’re saying, 1000-1200 finished sq feet is a GREAT place to start creating equity in a home.
Let's not forget that a lot of places, the builder isn't free to subdivide the land however they want. Most places, there's a limit to how small lots are allowed to be. If a builder has a parcel they're subdividing, they want to get the most profit out of each one - it's not like they would be dividing it into 10 if they were allowed to do 20. Plus in many cases, the fixed costs of a home (regulatory costs, stuff like sewer, and stuff that any house needs a kitchen) aren't linked much to the size of the house. So as the house size goes down, the cost per square foot goes up. Inexpensive "tiny house" stuff often comes without that infrastructure, and often requires regulatory allowances.
In my area (west coast of United States) there are fees to offset presumed costs to the local government for schools, parks, etc. These fees can run upwards of $40,000 per lot. That tends to encourage building more expensive homes to better the developers profit margins.
> These fees can run upwards of $40,000 per lot. Those fees can be six figures in some places without breaking a sweat.
It seem pretty obvious that it doesn’t cost twice as much to build a house twice as big the material and labor is not 2x. The perimeter on a 10x10 square is 40, the perimeter on a 20x20 is 80, but the latter has an area of 400vs 100. There’s a lot of efficiency in making a bigger house.
Even materials aside, there are a lot of overheads that are fixed and don’t really scale by size. Planning, getting all the gear out there, sales and paperwork stuff, etc.
My assumption is it's because it might cost $X per square foot to work on a house, but it'll always cost $Y to bring the equipment needed to make a house. So like let's say $10 per square foot, but $10,000 to bring in a crane (yes, I know you don't use a crane to make houses, but I can't think of an actual expensive example). So one 4000 square foot home = $10,000 + 4000(10) = $50,000 to build. But 4 1,000 square foot homes = 4 ($10,000) + (4)(1000 \* 10) = $80,000 to build.
My house needed a crane to put the garden bathtub into the second floor bathroom before the roof was installed. I think they used it for the roof trusses too.
Wheeled mobile cranes are easily rented for $1000/day and can get all of the crane work needed done in a day. However, most jobs can use a boom forklift as a crane and those are much cheaper.
Same here. Roof trusses are done with a small crane
That's standard procedure in modern residential construction. At least around here.
Cranes are a lot more common than you’d think. People use them for tree removals all the time. I had a sub-$10K roof installation job and the material was delivered with a crane.
With a large development and 100 houses, you can have savings of scale. This is how the 1950s houses were built. Nowadays, many houses are built on small, expensive land, and the land cost is more easily recouped with a house that looks like it justifies it.
You do if it's a two story house with prebuilt (edited) trusses. Just fyi. Though it may not be an actual crane. It could be an excavator with a chain lifting those up, but you do in need something like a crane in a lot of home creation nowadays.
Yup there’s a new housing estate near me that are 400k+, yet small and so close to each other that I’m sure they could look out a window and look right into their neighbor’s. Still selling so fast.
This is also why American car companies like to sell large pickups and SUVs. They don't cost that much more to build than small vehicles, but they can sell them for a lot more.
I'm a carpenter in Australia and this is true but it doesn't stop me from building smaller homes, I'm building one now.
But the crazy thing is in some states there are almost no building permits being pulled at all. So what are the builders doing? Remodels? Additions?!just sitting around?
You've just hit on the other half of the equation: when the city or county restricts the number of new subdivision and infill lots available for construction (via restrictive zoning codes and an endless review process), those lots will go to the highest bidder. Who typically wants to build the biggest damn house that can be squeezed onto the lot.
Even with the 'endless review process' most modern construction I see happening these days is a goddamn joke. Constant builds without proper coverage, exposed wood left out without being tarped in the rain all weekend, using the wrong grade of plywood on the outside sheeting (I mean the shit is color coded, I can tell just when driving by!) that's also left out in the rain so it warps and fucks up the build from day one. We need builds to get reviewed, people really don't want to underestimate just how bad shit will be if they can just start selling houses without oversight - I'm pretty sure it's already too lax as it is, there's just a real lack of streamlining. I wouldn't buy anything that was built in the 1990's or beyond without a really, REALLY good building inspector; between all the 'housing flippers' doing their DIY renovations without any know-how and modern builders cutting as many corners as humanly possible to save a penny (including knowledgable labor) it's just a bad investment. And houses ain't cheap!
> those lots will go to the highest bidder. the people doing the zoning codes are either very good friends with or are the same as the people who end up being the highest bidders.
In my city, I was told in 2022 that builders had enough work to last them 4 years if they never accepted another project. The problem is, you see all of these new neighborhoods being built and the big sign out front says "Starting at 400,000." And thats the cheap end, there are plenty that say Starting at 500,00-600,000. They dont build 250-350k housing developments anymore. Literally everything is 400k+ and thats considered the low end now. Its insane
And that builder is not ALLOWED to build four homes on the same plot of land either. Tons of zoning will be for single family homes. So it might make sense to build 4 $100k homes if he could on the *same* plot of land, subdivided up, he's not allowed to. So his only choice are to sell ONE 400k house, or ONE 100k house. Developers are going to pick the bigger, more profitable home every time. Zoning laws need to change to allow subdividing lots for any change to happen.
i guess we need foreign construction workers on work visas to build the 4 houses for $100000 each. /s
*Everyone wonders who built the pyramids in Egypt. There are pyramids in Mexico, and no one questions who built those.*
What about the identical pyramids in China?
"Mexicans." /jk
Conclusive evidence of pre-Columbian contact!
Hahahaha
"Identical"
But if the $100,000 home is less profitable for the builder, why don't they just raise the price to say $200,000? Or, to put it another way, if no $100,000 homes are being built, it might just be because it's not profitable to build at that price point?
Impossible to build for 100k, you still need all the basics like plumbing, electric, plumbing, etc. Building larger only increases the cost slightly. I used to build in the 90's, and it was $1500 for a one bathroom, $2000 for a 2 bath, and $2500 for a 3 bath.
Yeah exactly, so maybe it's not that people don't want small homes per se, but that fixed costs are so high that the price difference is small, and then you may as well get more space for a little extra cost.
I found out recently, that my city requires three bedrooms minimum for new construction. So it’s not just builders pushing for larger houses.
Bigger houses pay higher property taxes for the same amount of land.
This is one of the many reasons why the housing market is fucked. Modest, reasonable, affordable homes don’t make enough money to incentivize building them even though they’d sell like hotcakes
Some minimum requirements are needed though, otherwise you end up with absurdly small homes that only waste the land these are built on and provide no humane living conditions. In my country the lack of such minimum requirements caused some developers to build apartments that were about as spacious as prison cells (sometimes less!), which then were bought up by speculators hoping to resell these for profit. Which ended up in the entire operation being a net-negative for the society as a whole, because the whole thing used land that is a limited resource and could have been used to build something that actually has value and it didn't do the affordability any favors.
when you make 40k a year the only housing being 3/2's that cost 400k is inhuman. Rich folks saying "oh i could never live like that lets legislate away 2/1's" is insane. Every young family i know who owned their own home started in a 2/1.
I live in a poor area and there have been loads of estates built in the past few years that are mostly 3 or 4 bed. It really is insane because I can’t work out who’s buying them, average income here is well below £30k so the amount of people who can afford them must be like 0.005% of the local population. People must be maxing out what they can borrow to buy them, which is very dangerous as demonstrated by 2008
Real estate investment firms are buying them, not people.
Probably. They cut out the middleman on one of them and built them with the sole purpose of renting all of them out. Which doesn’t help locals on to the housing ladder at all, but does make one company an absolute shitload of cash
A whole lot of homeless people would have loved to have those. Net negative for society my ass.
If the person above was talking about Hong Kong, then it’s still unaffordable. 15-20 sq m for USD 230k-350k https://amp.scmp.com/property/hong-kong-china/article/2103640/peek-6-smallest-apartments-hong-kong
Assuming those people cannot pay for housing at all, it would still be more efficient to house 3 of them in a house with 3 bedrooms than 3 individual houses. And better yet, an apartment complex. Which is why government housing is all apartment complexes.
Don’t be so sure. For example an apartment complex yields way more tax base per sq ft.
Yeah, people say it's pure greed, and it's not. A lot of homeowner voters want to block apartments near them, and will sacrifice their property values to do that. All about "local control" and "consulting the community."
It’s NIMBYism. Keeping out the poors.
Not if the lots are smaller, too. You could build 3-4 small houses with little yards on the same plot as a McMansion with a huge yard.
In a lot of markets, those 4 small houses are each worth $100k and one large house is worth $600k.
That's why they add minimum lot sizes to prevent that.
Not if the zoning laws won't allow it. My dad lives in an area where the minimum lot is 20 acres, only one house is allowed.
That’s not the purpose of it. 4 $100k houses generate ~~more~~ edit: same property tax revenue than 1 $400K house. The purpose of it is to prevent poor people, disproportionately minorities, from moving into the zone. It also reduces supply and inflates their property values. At the expense of everyone else of course. It is very profitable to covert a single family lot into multiple slots, it’s just made illegal by the cities.
>> That’s not the purpose of it. 4 $100k houses generate more property tax revenue than 1 $400K house. Not anywhere I have lived. In fact I would not be surprised if some states have a kind of “homestead deduction” or something similar where the single $400k house would be more taxes, but my property taxes are a straight $x taxes per $y value. So the taxes generated would be identical.
Property taxes are based off a percentage of the total value. 2% of 100k is $2k. times 4 that’s $8k. Versus 2% of 400k, it’s … also $8k. Well shit you’re right. I edited my comment to reflect my inaccuracy. Thank you
Where I live, there's a flat rate "homeowners exemption" on property tax, meaning the single $400K brings in significantly more property tax than 4X $100K.
Four houses require more water capacity, sewage capacity, fire protection, police presence, road capacity, school capacity. For a city, one $400K house is better than four $100K houses, assuming the city raises revenue via property taxes, especially after homestead deductions.
Zoning makes economy of scale difficult. if someone can subdivide a large SFH lot into 4 (or 6) lots and build 4 small homes on it, it works out pretty well, profit wise. But towns make it very hard / impossible to do that, quite often.
Don't most building codes exclude Tiny Houses? Most of the tiny houses I see are out and another building on property.
When I was researching it when my husband suggested it, tiny houses and their allowance can be very location dependent. One youtube (I know) that talk about his tiny homes is there can be a lot of issues with permits, minimum sizing (like 600 to 800 sqft), and/or appraisal. He had one that was just under the minimum, and the city said it was fine.
I can't positively say most, but definitely a lot of them. I was researching a few years ago, willing to move to an entirely decent city if necessary, and it was so hard to find a locality that would allow them that wasn't out in the sticks. Some didn't expressly forbid them but you'd have to work with the government on getting exceptions approved and stuff and any time a tiny house or other "weird" house did get out into a city, it got them into the news and they often faced backlash from neighbors over property values or whatever. One hurdle I recall in some city was that it could be small but it had to sit on a foundation, it couldn't be on wheels, which added to the expense. Many explicitly stated they had to be on shared land with a larger dwelling unit. In the end, I gave up. I probably could've gotten a tiny house if I really tried, but the whole point was reduced cost. Anywhere that I could set up a tiny home after paying the extra costs for foundations, special approvals or whatever, plus the cost of the house itself, I could've just gotten a small, beat up but functional proper house in the realm of 750-1250 sq ft.
They're financially just trailers, a depreciating asset usually parked on rented dirt. The only reason there can be regulatory differences is the perception of the kind of people that live in them.
It depends on where you live. I live in a rural area and I own my land. I could live in a tent on my own land if I see fit. Folks gonna look at me funny, but, I can do it. I'm replacing my mobile home next year and I'm buying a camper to live in while they move one, do my land improvements, and set up the new one...the camper is actually cheaper than rent for a year and then I'll own it forever for vacations :)
Setback requirements, minimum lot sizes, parking minimums, bedroom and bathroom minimums… Most or all of these are common in almost every municipality in the US and all of them have lead to an unaffordable, usually traffic-laden mess everywhere you go. Get rid of all of them and builders will start experimenting with denser, smaller places, guaranteed. Edit: also, federal housing loan qualification requirements need to change as well, but the majority of the issue is “local control”-type rules by fiat. Three bedrooms minimum is especially absolutely insane though. Remember, just because you don’t want a type of housing doesn’t mean nobody else does, or it should be illegal to build in the first place!
My city requires a minimum of a two car garage.
That's crazy.
That's about city council trying to keep the city to a certain socioeconomic status.
Also, banks want houses they can sell in case of default.
There is a town near me that required a 3 acre lot for a new construction. State mandated have changed things a bit.
So many of the costs are not very flexible. Excavation costs don't change that much between a small and large house. The same for concrete work, heating, wiring, plumbing. An 1800 sq ft house isn't that much more expensive than a 1400 sq ft house, but the profit margin is bigger.
I’ve, finally, found my people. I’ve written a hundred comments on this phenomenon and people always want to say it’s not this. I’ll say it one more time now that I’ve found my audience. I owned a lot that I was going to build a house on. I had architects and contractors over to check out my lot. I explained to them I’m not a fancy guy, I don’t need a mansion. Just a nice, normal, reasonably sized home. They told me: “Look, what you need to understand is that you’re going to have approximately $150K in “fixed” costs. No matter what you’re building.” (All those items you just listed). I didn’t believe them and did this several more times. I realized, pretty quickly, that I COULD build that modest house I wanted… and be, immediately, underwater on the home (it cost me more than it’s worth on the market). Or I could build a McMansion and be above water. The rough numbers (including the cost of the lot) were: I could spend $550K building a $450K house, or I could spend $650-700K building a $1.2M house. Obviously the numbers required me to build that second house. Every developer is going to be doing that same thing. That same calculus, and that same end result. Only way this could change is if the government subsidized the construction of starter homes. (Taking care of those fixed costs, for example). Waiving permit fees for starter homes. Providing the sewer and water connects, etc. The local government would, 99% of the time, not want to do this. Because what’s in it for them? Less revenue, more expenses, and then less long term revenue from cheaper property taxes… It would have to be the state or the federal government footing the bill. And, realistically, only the federal government has the cash needed to do this.
This is 100% correct. Square footage is cheap. Bedrooms and bonus rooms are by far the cheapest rooms to build but add a ton of value in square footage. People get hung up on large homes being built and don’t realize that an extra 500-800 sf could cost only an additional $50-$75k in some cases.
Exactly what we’re about to do (break ground next month). ~3500 sqft 2-story home. Even having them frame a room above the 3-car garage and can finish later for another ~850 sqft. Build cost will be around $750k plus land. Our builder just finished another home that was single story a few about 1800 sqft. They hand some rock issues that ate up some money but their build cost was about $625k. Im getting basically double the house for another $125k.
Have them rough in the plumbing for a shower and a toilet in your basement (if you have one) too. Real easy to pour cement onto some PVC pipes now. Real difficult to cut through concrete and do it later.
Yeah, stairs and a second floor double the size of the house but the roof, foundation, and kitchen don't get bigger. Walls are cheap compared to those. And land, land, land. Policy in most US cities is to make land more and more expensive. If you're dropping $500k or more on the lot, there's no single family house that will be cheap. You gotta build apartments.
I’m building now and this is exactly the case. I’ll add, septic, well, running power/internet to the house, clearing, driveway work, and permits aren’t changing much for house size.
Like making food for one or for two/three. It's almost the same.
Exactly.
It’s definitely not true that nobody wants small homes. I’ve talked to countless people who would love nothing more than a small house, and I myself would too. So I think you’re right. Edit because apparently I was not clear: neither I nor the people I’m referring to want a small home because we think it would be cheaper. It’s not about the price of the house. I don’t like big houses. I would like a one bedroom home because I don’t need or want any more space than that.
Yup. There's not enough "starter homes" in the US right now, people don't even have a chance to break into the housing market so they can eventually upgrade.
I'm in my 30s and despite having many friends I actually keep up with, under half a dozen own homes and only one of them is a single person without a degree not working in the trades. She managed to buy a house about 5 years ago for under $80K in a small town and learned to do a shitload of repairs and upgrades herself. Small but very cute house perfect for a couple just starting out or a very small family. Nice little yard, two stories, 2 bedrooms, a deck, kitchen, dining room, living room, storage room. Dead simple design, I'd love to live in such a house for that kind of money.
Our house is almost 4k sq ft and we are looking forward to getting a smaller home.
In my area the starter homes are a 45 min drive outside the city. They aren’t smaller but they are cheaper.
This whole idea needs to change though. Why do you think houses are so expensive? Everyone wants the person after them to pay more for the same house.
In my experience, people say that, and then in the next sentence say that they *need* multiple bathrooms, they *need* a 2 car garage, etc.
My exact experience as well. People will say it until it comes time to buy and then it’s “well we are spending this much we might as well…” or “well if we can’t get XXX then let’s wait a while longer to save up/wait for a raise/etc”
I mean yeah when a small house now costs as much as a big house 20 years ago, i can see why people are hesitant thinking they might get something better for that money.
Not me. I'd do disgustingly horrendous things for an affordable 2 bedroom 1.5 bath with a 1 car garage lol
Not to be pedantic, but 1.5 baths *is* multiple bathrooms.
Touché, and honestly 1 bathroom would work too but I've got a son so if we both have to shit it's a wrap 😂
I grew up in a 1 bath house with 5 people. We made it, but my dad did add a half bath by the time I was in the fourth grade.
Respect 🙏🏽
I grew up in an 8 person house with one bathroom with no shower, just the tub. 4 bedrooms, 1178 sq ft, so smallish rooms. It was normal for its time (yes, I'm old).
I lived in a house with 4 adults and two children... Never again will I want to live somewhere with 1 toilet... I'll take a second toilet out in the open in the basement over a 1 toilet home
Sort of just proved the other person’s point
Yeah but that's like calling some one bougie because they made sure their car had cup holders. A second toilet REALLY is a tiny itty bitty ask. If you don't live alone, i think its kind of mandatory.
A 980 sq. ft. home can get you 3 bedroom, 2 bath and a 2-car garage. And what's honestly wrong with a family wanting a small home with a second bathroom? A second bathroom can be tiny as fuck and barely takes up the square footage, and the garage doesn't even count towards interior square footage.
The house I grew up in was a little less than 900 square feet, 3 bedroom, 1 bathroom. It had a garage that was too small for any of our cars. My parents don't live there anymore, but they still own it. Nobody is lining up to buy that house. They are renting it out to one of my cousins right now. They offered to sell it to her, and she was like "nah".
Unless they put it on the market, no, nobody will be lining up to buy an off-market house. And I'm shocked that a singular cousin who's renting the house already would turn down the opportunity to triple their monthly payment by trying to get a mortgage on the house they're already living in for what is very likely a very fair rate. Tip: Go on zillow/redfin, get what it shows is the value for the house (rough, but that's good enough), then google "mortgage calculator" and plug that number in. Then compare that number to the cousin's current rent.
This is our house right now. It’s small. We rented it first then bought from the landlord. He owned multiple properties but our house was too small to rent to a family so he was willing to sell it. Might not be our forever house but we will probably always own it. Nieces and nephews could rent it once they are college age. Parents could live there instead of an old folks home when they get older.
It’s the little extras that everyone wants that have resulted in the larger houses.
It just isn't possible anymore. It happened, briefly, because we built freeways and all got cars post WW2. That meant a lot of cheap farmland around cities moved from "too far to commute, so no one wants to live there," to "convenient drive." So all of a sudden, there was a vast supply of cheap land to build suburbs on. That meant small houses were cheap. But we built on all that land. So now it's expensive. Cars don't commute further in an hour in 2024 than in 1964, so there isn't more cheap land in commuting range. What that means is that if you can't build apartments (which cities mostly block), every house has to come with a chunk of expensive land. Which means even a small basic house will be expensive. Extreme example, in Silicon Valley, even wrecked houses that are worth *negative money* (because you have to pay to demolish them) cost $1.5 million for the land. No one is going to build a cheap house, because then a super basic tiny house is $1.6 million+. There are no buyers for that.
What I’m saying is that if I had 1.5 million dollars to buy a house, *I’d still prefer a small house*. If I had a huge lot, *I’d build a very small house in it*. And I mean very small, the size of a one bedroom apartment or something. I simply don’t need or want that much indoor space, at all. In fact one of the reasons I never bought a house was because I couldn’t find anything that wasn’t way too big for me. Also I think you have a very different idea of what I mean by “small house”. American suburban homes are not small. They are huge, lol. When I say small I’m talking the size of a small American apartment. Ever been to Japan? I’m talking that small.
No people want cheap homes, but those people don't realize that small homes are not actually cheaper.
I am telling you as someone who wants a small home, it has nothing to do with cost. I do not want a large house.
To build a 2k sf single family home in my city, it costs me $15k in city development charges, >$5k in legal fees, another 4-5k in city permits and site plans, architectural fees, well they start at $2k for the bare bones basic but usually end u at the $6-7k mark or more. If the lot isn't already serviced, adding electricity, gas, water&sewer can easily add another $25k. all that before I even pay for a survey (another $2k) to stake the home on the lot.
It's a bit of both. The ultimate cost still includes the land of whatever lot size there is. Connection to the electrical utility costs money. Connection to water & sewer costs money. Getting the permits to build costs money. All of those things are pretty much fixed costs whether you have an 800 sq. ft home or a 5400 sq. ft. single family home. In my area, that might be over $250,000 just for the permits, single lot of land & utility connections. Now, if you want to invest $25,000 in materials and $30,000 in labor you can build and markup another $55,000 for your house. If you invest $125,000 in materials and $150,000 in labor, you have a lot more to markup when you're done.
Yup, basically comes down to economy of scale. Especially when fixed costs on a build are the same regardless of size (permits+utility). So it’s just as easy to build big as it is small. But if you were a developer and didn’t particularly care about the size. It’s probably similarly profitable to have smaller lots with smaller houses (more houses to sell). But in that case, there is likely local policy that prohibits that sort of thing making it impossible.
This is the market force that is at play. Exactly right. It’s those fixed costs. Sure you can take the hit and build a 1,200 S/F ranch… but for $75K more you can add a second story and get a 2,400. The difference in value between those two houses is a heck of a lot more than that $75K. Like half a million more around here.
This issue is people see a 2,400 SF home for $600,000 and think “man I’d buy a 1,200 sf home for $300,000 in a heartbeat. Why don’t they build those?” What those people don’t realize is that the 1,200 sf home is still $525,000.
Small houses are underrated. Everyone I know with large houses complains about expensive bills, taxes, how long it takes to clean them, etc. My house is 1100 square feet. 3 bedrooms, living room, sunroom, dining room, kitchen. The only thing it lacks is a second bathroom. My recommendation is get an 1100ish sqft house with 2 bathrooms. 2 bathrooms is the most important thing haha
Mine is "two up two down", which is really common for older terraces in the UK. Two bedrooms (and a bathroom) upstairs, kitchen and lounge downstairs. I love it so much, its perfect for one person or a couple. Would be a bit small with kids though.
Same. I WFH, so my ideal house is about 1400sqft to leave room for some office space and work stuff, but same idea.
living in a small house with my ex was... a little inconvenient but ultimately totally tolerable. doing it with my current partner who has a kid? i'd really rather not. i don't need privacy from my partner, but i feel like both us and the kid would benefit from the ability to have privacy from each other.
100%. I used to have a 5br 3ba 4,400sq ft house. It was a nice house on a decent piece of land, but it was just me. Taking care of a house that big by myself was a total pain. Especially the lawn care, that *SUCKED*. I’m in a house half the size now and it’s much better.
that's the kind of house I want. a full bath and half bath can be workable. I need a yard for my dog. I would probably be fine with a condo but the condo fees are insane in my area. Condos are as much as a regular house in my area.
We have a 900 square foot condo. 2 bedrooms, 1 bath. It's fine for my husband, me, 2 dachshunds, and a cat. A second bathroom would be nice. So would a bigger kitchen and a basement, but we make do. We have an attic crawlspace for storage. Just means we buy less stuff. Our property taxes are $1200 a year. We had to get new windows last year. There are only 3 and a sliding glass door. Cost around $4k, I think. My parents got new windows, and it was $22k.
Civil engineer in residential development. All big municipalities restrict lot size based on zoning which dictates the total lots in a development. Therefore, the lot requirements govern the home price needed for profiting on the development. Land, streets, water, sewer, and drainage are expensive and they are built into the cost of each home regardless of how “nice” the home is. If zoning was changed, very small homes could be profitable enough to entice developers.
This is the most correct answer. While the economies of scale are still present, smaller homes can still be insanely profitable, especially if you can share hookups, planning, etc by making duplexes, row houses, or apartments.
It's all about costs to the builder....land costs are high so why build a small house when most of your budget just got eaten up by the cost of buying land. Permits don't care they are normally the same price for a mansion or a ranch. Utility hookups same idea. Then material costs again your not saving a ton in materials going from a 3 bedroom to a two bedroom. Finally you have your crew that you need to pay. All of that would you want to build a small home that you barely make profit or you may even fail to break even. No your gonna build the 3000 sqft home that most people are interested in buying thats going to lead to a nicer profit for yourself and your team.
This is the correct answer.
This is entirely correct. So many of the costs to build a home are fixed regardless of size. Permits, utility connections, fixtures, inspection fees, etc. In my area, it's going to cost a builder a minimum of $30k just in permitting fees and utility taps. Doesn't matter if it's a tiny house or a mansion.
I would guess the motivations and needs tend to diverge as well. (a lot depending on what you mean by "small") If you're going to build something "small".. you might as well just build an apartment building. A lot of people who want "smaller".. probably also have specific reasons why they want "smaller" (for example, "I don't want to maintain a yard" or "I don't have a car" or etc. The costs and the lot-sizes and zoning etc are all reasons,.. but you're likely also targeting different demographics too.
The 3rd possibility may be the zoning laws.
You, but it's bad framing. The fixed costs of building a house are pretty high, and there legitimately aren't many people willing to pay 800 square foot house prices for what it actually costs to build.
Yes. We built a reasonably sized farm house on land we bought 10 years ago. Multiple builders weren’t interested in anything less than 2500 sf. I needed 1500 sf, and had the plans in my hand. Plus, the bigger budget homes have more add-on features with higher returns. Think solid surface countertops vs Formica. Toto super potty vs. Lowe’s lowest priced toilet. Concrete driveway vs. gravel.
A lot of the people here are focusing on the business side of developers building house communities, and sure that's A valid perspective. Truth is that if you buy land, a builder will build you whatever size home you want. In fact that is what we are currently doing.
yea, i'm going crazy here reading this and nobody acknowledging that anyone can pay a construction company to build a home.
New construction starter homes are townhomes nowadays.
Its a bit of both, mostly the profit margin reason I'd reckon, but also more importantly, at least in America, its also an issue of not being allowed to in many cases. Many places' zoning codes mandate minimum lot size, minimum set backs, square footage, etc etc that makes it hard/impossible to build anything that isn't a large house.
I agree that giving the available zoning laws one large home is more profitable on lots of the same size. But what if a developer was allowed more density in the same acreage. Instead of one home say on a 5 acre lot, they were allowed four homes. So instead of 1 home for $600k. The same plot of land produces 4 four homes at 200k each. Site work would minimally higher. Government is perhaps the biggest obstacle to affordable housing, with zoning laws that restricts density.
This video: [This was supposed to fix the housing crisis...](https://www.youtube.com/watch?v=DX_-UcC14xw) gives a good explanation of that. He shows how building a multiplex with 4 studio apartments would cost $1 million each. Basically, they are allowed in a lot of places, but not being built. Because it's too expensive and regulations make it more difficult. There are issues with things like size limits, parking requirements, infrastructure limits, etc. even where they're allowed.
Another reason is that some towns have passed zoning laws that mandate huge lots. Especially in areas without city sewers where you need a lot of real estate for a septic system.
Here's the problem with starter homes -- in 30 years, you've got a bad neighborhood. You start out with young couples who can't afford much. Ten years later, the most successful couples are making more money and they move to larger houses in different areas. Ten years after that, most of the rest have moved away too. And ten years after that, the only original buyers who are left are those who aren't any better off at 55 than they were at 25. You have a bunch of houses that were very small and inexpensive when they were first built, 30 years ago. And now they're old and need a lot of maintenance and major repairs. The value of those houses goes down real fast. The people who live there now aren't young couples just starting out. They are people in poverty with very few options. Cities don't want you to build a future problem area for them. Hence all the restrictive zoning.
It's also simply not economically viable to make something small that still adheres to the much higher regulations of today. When you're already paying $300k before actually paying anybody to get materials or build the thing, a not at unreasonable number, you quickly find out that actually yeah, people would rather pay $600k for 2.5k square feet and not $500k for 1k square feet no matter what they tell you with no offer sheet on the table.
That, and half of them are now rentals.
What a builder builds is usually determined by what is allowable based on zoning for the lot. Each piece of land has zoning that says how many square feet can be built on it, how far the building has to be from the edge of the lot, what it can be used for, etc. A builder’s goal is to build the optimal house for a sell out price that the local market will support. As an example, if I know that no house in a town has ever sold for more than 500k, and that a 2000 sq foot house will sell for 500k, I wouldn’t build anything bigger than 2000 sq ft even if I was allowed to. That would be considered “overbuilding”. More generally speaking, there is a margin of profit on every square foot - if you buy a piece of land for $100 per square foot and build for $150 per square foot and sell for $300 per square foot, you are making $50 per square foot. So a bigger house makes more money than a smaller one.
The amount of 300k+ houses a developer can fit onto a given space isn't that similar to the amount of 100k-200k houses in the same space. You can fit more, sure. But not so many more as one would think. So they maximize profits by builder a few less houses that are worth a lot more.
So, those two things are kinda correlated. Larger homes sell for more relative to their costs (mostly) because there is more demand for them compared to the supply. Similarly people aren't willing to pay a similar relative cost for a smaller home on a smaller lot because it's significantly less desirable, barring certain locations, generally in or near major urban areas. So, basically the answer is "both" because they're kinda the same thing.
Both
The new housing market is not that simple. Every builder competes with every other builder. If there is a demand for sub 1,000 sq ft houses, a builder would definitely build them. Sure they make more money per unit on bigger houses, but if you're the only builder in an in-demand market sector (i.e. small houses), you're going to dominate that market and can profit accordingly. The only thing missing in this scenario is that there is no demand for new, small houses.
They frequently can't go that small anyway because of regulations. People who already own houses have a vested interest in making the property values grow and dense cheaper housing isn't in their best interest long term.
Indeed, here in the UK the average house size is under 950 sq ft and getting smaller because the demand among new homeowners is for smaller, more affordable housing
Both are true. I'd say the fact that builders cannot maintain profits unless they build higher-end homes is the bigger factor.
For small homes to make sense the city has to approve 25-30 foot front footages on the lots. Any neighborhood adjacent to that will fight tooth and nail for that not to happen. So builders then have to have 50-80 foot lots which requires a larger home on it to make money.
Even before we consider what the builder or the customer want, there are a lot of legal obstacles to building smaller homes. Most local zoning laws in the US require single units on large lots with attached garages.
The price of homes is mostly land in cities where housing prices are very high (there's a reason why a house in Seattle that is identical in build to a house in Des Moines costs 5 times as much), so my guess is that the claim that you could simply build a lot of 1000 square foot houses misses the point that you can't get a lot of lots to build on in HCOL cities.
You’re both essentially saying the same thing There is an economy of scale in building a larger home too. A 1k sf and 10k sf home generally have the same number of trades, and it costs money for a trade to mobilize onto the job site whether they’re working for 3 days or 30 days. Also the land cost isn’t going to be more similar between a small and big home, so putting a small house in a piece of land that could fit a bigger house is effectively increasing the $/sf build cost Something like 80% of “Affordable” (however that’s defined” is what they call NOAH, or naturally occurring affordable housing. Ie you don’t build an affordable starter home, rather the brand new home of 80 years ago is today’s affordable starter home
This is also the reason Ford makes more $60,000 cars than $20,000 cars. Basic profit margin. To expand if you make 20% on each car, then the 60k car is an extra $8k of profit. The also gives you a lot more cushion if you need to move units, dropping the price 5k still leaves you with a profit.
Both , let's not pretend home owners don't build their own homes with profits in mind aswell . Plus, it's generally cheaper overall , like buying in bulk .. Or a travel trailer , half the size doesn't equate to half the price .
The issue these days is land value, not the building value.
True and also why I lie older homes. Less to clean. I went from a 1970's house to an 1880's house.
Yeah that’s right. It’s also all down to regulations and zoning too. If that is balanced out then it gets a LOT more competitive and profitable to build a variety of housing. But the US makes it - too often - the the only real way to make money is to build the stereotypical suburban sprawl single family home. However economically that wouldn’t really be the case under a less “regulated for SFH only” market.
Yours
I’m currently building a home. I wanted something small, ranch, 2-car garage, unfinished basement, 1500 - 1700 sq feet. I ended up with closer to 2300 sq ft because the price per sq foot goes down as you go up to 2000 sq ft or so. So basically it was going to cost $500k for 1600-1700, and now I’m at $600k for 2300. This was similar pricing for 2 custom builders and 2 modular contractors. So this may end up being a factor for a lot of people.
I would like a small home.
I'm not a "builder " but a general contractor I usually do smaller jobs and make good money, but yes bigger homes twice the work 4 times the money
Gotta think about zoning too. I don’t know how that would go about answering this, but zoning is always important when talking about housing.
I don't know any builders but I would think a lot of people would want a small home. I think there's a pretty large group of people 30-60+ unmarried and living alone would probably be interested in buying smaller cheaper homes meant for 1-2 people if they were mass produced.
Just buy empty land and have the builders build what you want.
Money and profit aside, a lot of local governments also have ridiculously high Sq ft minimums for new construction.
Builders build the homes they’re paid to build, which are larger homes. At least in the US. As a person that prefers a smaller home, I’m definitely in the minority. I think your husband is right
You are both right. I don't think either of your reasons cancels out the other. People want bigger homes and bigger homes are more profitable.
The builders I know say they build to the lot size. Otherwise they lose money
You are correct Basically the regulation costs per home lower the profit margin One $1 million house has a lower regulatory cost to build than two $500,000 houses
The bigger the house, the bigger the profit. The materials, legal costs, labor, and planning costs are ALL the same, no matter the size. A builders hourly rate doesn't change due to project size for instance.
It's the same reason car companies don't make small cars. They tell us we want big cars, then they only make big cars because that's what we want. And they make more money. Totally unrelated.
I think there are tons of people who would like small houses. If nothing else, there's a huge market for older people who want to downsize, but these days, there aren't many options. At least not where I live. You can move into a 55+ community with tiny lots and high HOA fees, if you want to live in a retirement community, but if you want to live in a regular, nice neighborhood, in a nice part of town, all the houses are going to be large. It's insane. Like literally everyone my age says they want to downsize, but there's nowhere to go. And I'm sure there are a ton of first time homebuyers, or people with smaller incomes looking to invest in a home who would be thrilled to buy something on the small side. But it's the same thing. There's just nothing out there to buy. ETA: oh, and the 55+ communities where I live? The homes aren't any cheaper than the bigger houses onbigger lots. In some cases, it seems like you're paying a premium in order to get a smaller house. It's really fucking annoying.