Lennar said that it’ll cost from $19 million to a max of $25 million to build a 136-unit complex, including builder profit. Say that the land is worth $5 million. That works out to about $220,000 unit, not including the retail space below.
Now, a for-sale “luxury” tower is different from a low-income tower only in terms of fit and finish. If we add $50,000 per unit to for the “luxury” finish we have $270,000/unit.
Guess what? At the beginning of the bubble, condos downtown were selling beginning in the high $200s.
My example is a very simplistic look at building costs but I believe it gives us an insight into the margins.
So when I hear that builders can’t make it because replacement cost is so much higher than current market, I have to laugh.
Right now, the builders are bluffing and not building to protect their profit margins just like OPEC migh cut oil production to keep prices high.
But if consumers stop buying, they will have to crank up production again to maintain revenues to survive. If the price of land continues to drop, then building will start up again like it did during the 1990s downturn, when there were not a lot of projects but still some new building nonetheless.
