Cost of lumber, cost of land, cost of equipment, cost of permits, cost of inspections.

It really isn't a box for $300k. You can buy a mobile home for what $60k?

Permit process isn't broken.....this is a view often held by incompetent contractors. I have performed various jobs like building retaining walls, bathrooms, electrical, decks and never had an issue as long as my work was up to code.

Permits can protect a homeowner, when the contractor bails without finish the work.

But back to why a home can be $300k, it is a lot of work and materials. From an article, "According to NAHB, the average material cost to build a house is $296,652, with the average square footage of a house being 2,594. That means your cost per square foot is $114.36 ($296,652 / 2,594)."

You are underestimating how much it costs to get lumber, copper(can use pex), brick, concrete etc.

You sound like someone saying, I can have a wordpress site for $1000, but why does it cost $500k to build an ecommerce platform.

>and never had an issue as long as my work was up to code

Permits cost tens of thousands of dollars, and months of processing in my area. They’re happy to sign off at the end after they’ve extracted the maximum they can from you.

Sounds more like a problem with your area, or maybe you're doing different type of work compared to what I'm doing with my house (residential vs commercial maybe?). I've been applying for various kinds of permits (building, electrical, plumbing, still need to get mechanical) and in all those cases, I applied online and the permit was issued same or the next day (& precon inspections that I went through have all been scheduled for the next business day). Total cost was in the ballpark of $1000. This is in WA. I did not need any structural changes so the process for the building permit was cheaper & quicker than it could've been. I also had some work done that did require structural engineer & submitting drawings - it was a fraction of the remodel cost anyway.

OTOH, insisting on permits potentially saved my ass at least in one case - I had a contractor remodel my bathroom say that "they do everything up to code". Their work did not pass inspections on the first try (had to fix things up both for plumbing and electrical).

And that is assuming you can get permits - which in many jurisdictions can take years to figure out, and multiple major changes.

The intent in many jurisdictions is to tarpit change as much as possible and it shows.

It isn't the permits themselves which are usually the problem.

There are likely some valuable skills and services that go into that permit price. I doubt it's pure grift.

It never is. It would've been eliminated otherwise. There's some core of value being delivered, wrapped in a layer of corruption. The question is, what's the relative size of the core to the grift layer?

Permit process also protects the community.

I was paying for a house to be built by a contractor who, it turns out, screwed up the permitting process and didn't do a hydrological survey of the erosion pattern on the land. The town yanked his permit to build.

I was grumpy, but when I drove by I could see clearly what the problem was: he hadn't planned for drainage at all, and the new construction and alteration of the terrain had already caused rainwater to start pooling at the base of my future neighbor's foundation. If he'd been allowed to continue unhindered, he would basically have guaranteed my neighbor's property would have been destroyed in 5 years.

Permits are a local government issue. Maybe your local government is extremely reasonable and punctual when it comes to building permits, while my local government is lazy or stupid or corrupt. Maybe you have no problem with building permits because you don't live in a county where the authorities slow-walk anyone who doesn't buy them a case of whisky.

> why can't I buy a box to live in without spending $300,000?

Manufactured homes are like $20,000. The plot of land that they go on however, is subject to political rules. Turns out that people don't like cheap housing to be available, because it attracts the underclass.

Its important to remember that housing is mostly a solved problem. The politics of housing are not solved however: too much "progress" (aka: higher prices) and people complain about gentrification.

Bringing down the cost of housing is akin to inviting gangs and thieves into your neighborhood. Everyone wants to support the poor and needy, but just not in their backyard.

Its very difficult to convince a typical city / town / county to support the development of a new trailer park. That's just how politics are today. Politicians are screwed if prices go up. Politicians are screwed if prices go down. Politicians are screwed if prices remain the same.

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Its not very difficult to physically build any kind of "underclass" home. Trailer parks, low-income housing / mixed-income housing (be it a high-rise or low-cost apartment/condo complex), etc. etc. But its very, very difficult to convince local board members to zone an area for that kind of home.

I agree. People pretend that expensive housing is an issue and then when it's their turn to buy and own the house they insist that it should stay expensive.

I used to work in a family construction business and now I do machine learning contracting. When I compare the value you get for 300k worth of construction to what 300k of ML specialist time buys you, it's hard to agree with your comment. I understand the reasons, but generally I'm blown away by how cheap most labor intensive things are, compared to how much people will pay for software projects.

I don't agree with your comment. $50,000-$100,000 of well placed funds with the right software consultancy can generate a project that pulls in enough cash flow to pay for itself multiple times over in just the span of months.

Machine learning is not a high return investment on its own. It is only leveraged as a technical piece of an already cash flow healthy larger pie in most organizations.

The division of labor and supply of various workers makes most labor intensive tasks self-explanatory in cost.

$300,000 can buy you a property that takes years to double in value in comparison. They're completely different categories of capital utilization.

FWIW, there are many opportunities for significant ROI in ML / analytics projects.

Low-hanging fruit I've seen in this area has included automating or augmenting labor-intensive manual processes (e.g., classifying insurance claims), replacing human judgement with time-series forecasts within an ordering system, and optimizing email campaigns with RL.

It's all about the things that scale to many people vs things that don't. A feature improvement in some app that makes extra $0.01 / year value for tens of millions of users is simply a larger effect than building a house for one family.

> If construction costs are cheaper than ever (are they really?) why can't I buy a box to live in without spending $300,000?

They're not cheaper than ever. Materials are expensive and in short supply. Labor is expensive because demand is high and few people want to do manual construction work.

But you're not literally buying just a structure. You have to buy a property for the house. In many locations, the valuation of the land a house sits on is higher than the value of the structure itself. My house could burn to the ground and my property would lose less than half its value, and I'm not even in a very high cost of living area.

You can buy a house for $300,000 if you're not picky about where it is. One of my family members had a new construction house built in the 2500 sq. ft. range for under $300,000 recently. The trick was that they live in a small town where property can be purchased for around $10K.

> See also: trying to renovate or buy a home in Arizona.

A quick search on Zillow shows over 1,500 listings for freestanding single family homes (not apartments, condos, townhomes, or other properties) for $300,000 or less. Many of them are even recently renovated, have 2-car garages, and frankly look quite nice.

Usually when someone is talking about starter houses being exorbitantly expensive, they're actually referring to the property being expensive. Loosen your requirements for location and it becomes much easier to find affordable housing. In most states you don't even need to move that far out of city centers. There are hundreds of properties within Phoenix and Tuscon that are $300K or less.

I have contempt for the price of devs. They sit in cushy chairs in climate controlled rooms eating cushy meals. Skilled construction people hone their craft over time just as a dev does, only in a not so comfy chair nor comfy climate controlled room in a workplace that has all sorts of situations that might seriously harm/mame/kill the worker or fellow coworkers.

It goes both ways

Construction costs are cheaper than ever? The prices have skyrocketed in the past year. Is this something special to Germany? I would've expected that the pandemic shows equal effects elsewhere.

I'm just saying this because every but-actually poster says something like this, but I think homes come with more amenities now than they did in the 70s, so buying a home isn't really any cheaper adjusted for inflation.

Yes, bigger houses for fewer people means costs still go up.

As far as renovations, I think the simple reality is that renovating requires a lot of very skilled labor, and skilled labor is not cheap. Good contractors where I live are booked months and months out. The weird thing is if you look the salary data, these jobs don't even pay very well. Electricians and plumbers both have average salaries of $56k, compared to ~$100k for software engineers according to BLS data.

If these numbers are representative, it's no wonder it's hard to hire a contractor. The pay sucks and it's hard work that requires a lot of training. Overall I don't understand how the economics of this industry work such that doing anything is expensive as hell, yet the workers are not paid very well.

Sorry, that's just not true. Electricians in Phoenix can break $100k, and they openly tell me about it all the time. The electrician who did my house went from making $40k in his first year to $250k float month-to-month. It makes working in software look like being a peasant out here.

Ask me what HVAC companies make in the hottest city in the nation.

Take it up with the Bureau of Labor Statistics. These are nationwide averages.

Reporting on averages is fine but you've made the mistake of thinking that average is representative of anyone. In all likelihood salaries are not normally distributed around that average, and we'd instead find a low hump (rural) and a high hump (urban, suburban).

I doubt it, when I looked at Phoenix salaries they seemed to be in line with the bls averages.

You can buy a box to live in for $50K. A place to put it, on the other hand....

The price consumers pay for something has nothing to do with the cost of producing it. Not counting the cost of the land itself, an identical house built in the city costs the same in hours and materials as one in the country. Price is determined by one thing, and one thing only: how much other people are willing to pay for it (i.e. the market sets the prices).

The costs vs sale price are relevant to the builder in making the decision on whether to build and whether to sell, as they wouldn’t do it if they’re going to lose money.

This is only true in the short run by the way. In the long run, in a competitive market, cost is absolutely the driver of price.

As I get older, I’m increasingly skeptical of the idea that many markets are competitive. There’s so much overhead to so many businesses, plus heavy use of price discrimination — it doesn’t feel like a lot of the stuff I buy comes from a competitive market. (I’m sure less likely to notice the stuff that is.)

How is this true for generally appreciating assets like a house? It makes sense for commodities but until location and style don't matter I'm unconvinced there's a such thing as cost driving price in the housing market on any timeline.

Why renovate someone's bathroom when real estate investors will pay you more and will throw years of work at you?

Also, housing isn't expensive because of labor costs. In many places, the land itself is worth more than the improvements made to it.

Why do you assume construction costs are the only factor that drives property value?

In attempt to turn this teachable: the costs that go into housing aren't just labour, whether skilled or unskilled. It's a number of economic goods and services, each of which has its own price dyanmic.

The chief cost of housing is land, and that follows the laws of economic rents and assets, in two principle ways:

- For goods subject to rents, that is, where supply is nonresponsive to price, any surplus value accrues to the seller rather than the buyer. The marginal price tends toward the marginal value rather than the marginal cost.

- Moreover, as an asset, land is subject to the general behavioural tendency that holders of assets will tend to act such that the value of assets inflates. This is through constraining supply, sale, credentialling, regulation, certification, and other elements. This shows up in zoning, construction, certifiction, lending, insurance, and other obligations or limitations on new construction.

- Unskilled labour is subject to wages, which tend to fall to the level of marginal cost, if not below that. Incidentally, in a simple society of labourers vs. rentiers, surplus value accrues to the rentiers as a case of the law of rent vs. the iron law of wages.

- Skilled labour wages deviate from those of unskilled as skill itself is a rent-generating factor, and hence skilled labourers can command somewhat higher wages. (Adam Smith's discussion of the five factors involved in the wages of labour are a fascinating read.)

- Materials follow natural resource pricing, which ... is very poorly understood by modern economic theory, but tends to follow the marginal cost of provision by the marginal supplier. That is, the supplier with the highest viable cost structure sets the market price for the commodity. Perversely, when the market is oversupplied, prices often fall (expected) and production rises as the only way producers have of meeting their own fixed costs is to produce and sell more at the lower price. (This occurs because marginal costs may fall below fixed costs.) The situation is not long-term sustainable, but may persist for a substantial period of time. For purely extractive resources (mining, gas, oil), the replacement cost of the good is not factored in at all, and market prices may be hundreds to millions of times below any rational fully-accounted cost basis.

Net productivity of labour has increased markedly. The land-cost of housing has increased far beyond that. Materials have shifted in several ways, with numerous older materials having been replaced by nominally-cheaper modern equivalents. Restrictions on construction methods, materials, designs, etc., impose additional costs and constraints in design and building as well.

The question largely reveals a large ignorance of the factors involved.

None of this is a mystery. There's nothing to teach to me here. It's just a complaint about the market.

No, it's a complaint about private land ownership.

Because people have great skill in exploiting other people as well.