San Diego Housing Bubble News and Analysis

This has been covered here on piggington many times. Property taxes are one big reason, in McKinney you'll be paying at least 2.5%, or around $12K/year. Air conditioning that monstrosity is gonna cost you 400/mo in the summer and heating it will cost you 300/mo in the winter. Mowing that big yard costs money and grass grows fast in Texas. Fire ants, weeds, thunderstorms, all of that adds a lot of maintenance costs. Carrying costs are much higher in Texas and they are always building nice homes and moving jobs farther out so in twenty years your neighborhood will be a lot less nice than it is now.

But you can get a big-ass house there if that's what interests you.

I think his point really boils down to how can they build so cheap there and not here. I wish I knew the answer that question myself.

Land prices.
Labor costs.
Regulations.

The difference in labor costs and regulations between Texas and California must be enormous; hundreds of thousands, perhaps. Even if you already owned the land, you *still* couldn't build a house like that for anywhere near that price in California - even in the less expensive inland areas. For example, let's say the land value of that house in TX is low - 80K - that means the house itself has a market value of 400K. You could not have a contractor build that house anywhere in California for anywhere near 400K. Are labor costs and regulations adding hundreds of thousand to the prices all across Calif? Anyone have a breakdown of these costs?

I’m wondering the same thing; does anyone have a breakdown of construction costs/regulation fees/etc?

Considering how much of California’s construction is done by illegal aliens, I have a hard time believing that the cost of labor is the determination factor what pushes the construction cost from $100 per square foot to $300+.

It's all in the Land Value.

It is because homebuyers are willing to continue paying high price for a roof over their heads. That's why the builders continue to charge potential buyers insane prices.

Demand & Supply, that's all.

We had great demand before and the builders increase the price of the supply. "Econ 101, baby."

Masayako

I have to agree with Masayako. The builders must love building in CA because they can pump up the prices so high and earn big margins.

So, hypothetically speaking, If I already had some land somewhere in san diego, I could construct a house (fully upgraded) for something close to $100 per square foot?

Goods and services are worth what someone is willing to pay, end of story. The price of the home is determined by the monthly carrying cost and the income of the people in the region. If the average middle class family is willing and able to spend $3K/month in an area for their housing costs, then the average middle class family home will cost around $3K/month. The home price only reflects a part of the carrying cost as mortgage principal and interest. The tax burden isn't shown, nor are the maintenance and energy costs. These are waaaaaay higher in Texas than in San Diego. Also, homes are bigger in Texas so families buy more crap to put in them which leaves less money for the house payment, energy bills, property taxes, etc...

A more reasonable comparison might be between homes in the IE and Texas since the energy costs would be more comparable (at least in the summer). The tax structure will still be different, however.

Material costs are a little different. Bricks are very cheap in Texas since there is a lot of clay there to make them out of. Texas builders love a California buyer because they can fool them into thinking they're buying a brick house when in reality it's just a brick facade covering up crappy 2x4 framing.

Regulation does contribute some to the increased costs here in California, but it is probably not that big of a component. Labor costs will be similar since there is a lot of illegal employment in both places.

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I don't believe that there is any one cause, except buyers that are willing to pay. It's not like this in the entire state of California. There are still pockets where you can get the same kind of deal. Here's one example, KB homes Saratoga at Victorville:

http://www.kbhomes.com/Community.aspx?Co...

Not quite 4,000 sq ft, but 3,683 sq ft for $366,490 is under $100/sq ft. So it can't be all about construction costs.

There are just a lot of people in certain areas that are willing to fork out the dough. You can't blame the builders for obliging them. It's the buyers that should be blamed, not sellers.

The $100/SqFt includes the cost of the lot, too.

Fees and permits are a lot higher here because we pay more in advance for infrastructure, as opposed to pay as you go with the higher property taxes.

Labor and workman's comp insurance costs are a lot more here

The subcontractors and suppliers work off of higher margins, and the developers take 100% of the difference between costs and sale prices. These margins are higher right now because the market will bear them, but they aren't an entitlement.

When you see a subdivision cut their pricing by 10% and still continue to build, you don't think they do that because their costs went down and they're just passing the savings onto their buyers, do you? The prices go down for the same reason they went up - that's what the market was willing to pay.

Land costs can and will decline (they already are in decline in some cases). Materials costs can and will decline as the suppliers compete with each other for an ever shrinking demand. Subcontractors can work for less, laborers can work for less, especially the English-Second-Language folks. And finally, the developers can work for less.

The only elements that don't have room for reduction are the fees/permits, and possibly the workmans comp costs.

We could do $120/SqFt construction for similar quality homes here in SD, no problem. That includes the (higher) fees/permits and the lot.

It boils down to a limited supply of permitted lots. It takes a long time in most counties in California to get through all of the approval processes, impact studies, regulations etc. A lot of the same people who want affordable housing regulate for 'smart' growth which is a code word for low or no growth. And by affordable they don't mean cheaper...

Developers make higher margins here on the land that gets built in order to compensate for all the projects that never go anywhere. Texas is a pro growth state where you can get land permitted to build on in a few months, something that can take years and year here and sometimes it never happens.

For the California house add $60,000 to $80,000 for the cost of getting the building permit, sewer permit, water permit and the plans approved. California has more than its share of fees.