Just the Right to Build a House in California Can Cost $200,000
The following originally appeared in the July 20, 2007 Modesto (California) Bee.
So you want to build an "affordable" house?
Well, I know that we all hope that housing can be affordable. Whether we are in the market for a new home to live in, for our kids, or simply for the employees and customers of the various businesses in which we are involved, affordability is a big item these days.
Last month I drove from Dallas to Austin, Texas (about the same distance as between Modesto and Bakersfield), and noted numerous billboards by national builders, all advertising new homes in the neighborhood of 1,600 square feet. Prices ranged from a low of $99,999 to around $130,000. Certainly that would count as "affordable" around here.
Perhaps we can aim to keep the price below $200,000 — say $199,500; surely, we could call that an "affordable" house.
OK, we have defined our target; now, let's start building. First we need a lot, ready to build on.
Good luck in finding one. I don't know where you can get a construction-ready lot in a desirable neighborhood around here. But just for the sake of argument, let's assume you do find one.
Best-case scenario is that the lot is going to run you at least $125,000. Even if you got lucky and settled for a marginal neighborhood, you will be in for at least $100,000. (Nearly all lots are controlled by merchant builders, who acquire lots in blocks of 50 to 100; they pay the above price for lots they buy in quantity — a price you can't duplicate for a single lot.)
Now we start adding the "soft costs," which include architectural plans and engineering (which will be required before you can get a building permit), interest and loan costs (assuming you are not paying cash), construction insurance, etc. Let's figure this at $10,000, although that would be very low — it would probably be far more for an individual builder.
We found our lot; we finished our plans; our game plan is set. Now all we have to do is obtain our building permit. So we go to the counter at the city (or county) public works department, checkbook in hand. Here is where the horror story really kicks in.
The check you will write for "development impact fees" is, depending on where you are building:
Patterson: $90,000 to $105,000 (depending on differing conditions on the specific subdivision map)
And what do you get for that? Well, you get a chance to submit your plans.
So (sigh), let's add it up. Our "affordable house" in Patterson is now up around $200,000; in Oakdale it is nearly $164,000 and in Modesto $167,659.
Wait just a minute! What is missing in this picture?
Well, what's missing is any shred of construction. Yep, what you get for the above numbers is simply the right to build. No foundation, no framed walls, no electrical or plumbing, no nails. Nothing but the "right to build."
Who are the villains in this sad scenario?
To start with, land and lot prices are very high for the simple reason that there is no supply of land available for building. The "no-growth" crowd and various local governments have pretty well assured us of that.
And the development fees are outrageous because local governments are unable to collect taxes commensurate with the services they render. Those who already have their homes get an easy ride while those who don't have one yet will pay the freight. You can thank Proposition 13 for the inequities of this situation!
Still want an "affordable house"? Well, you might want to move to Texas, or you might just want to let your city, county and school district officials know that you are, indeed, "paying your own way."
Dick Hagerty is an Oakdale, Calif. real estate developer active in community nonprofits.