NAHB Finds Construction Costs Are Three-Fifths of Home Price
Built-for-sale or “spec” homes have been particularly hard hit by the housing downturn, according to a new NAHB survey on the various components that go into the price of a typical single-family home.
Based on responses from 54 builders in 2009, “Breaking Down House Price and Construction Costs” found a relatively high proportion of custom homes — homes built on a lot owned by the customer, who hires a general contractor to perform the construction work — rather than spec homes.
These findings are supported by Census data showing a recent decline in the ratio of spec to contractor-built homes from more than six-to-one in 2004 through 2006 to below four-to-one in the latter part of 2008 and in 2009, according to the study’s author, Paul Emrath, NAHB’s vice president for survey and housing policy research.
The 2009 construction cost survey found that the costs of construction accounted for nearly three-fifths of the final sales price of the average home, and the cost of the finished lot accounted for just over one-fifth.
These shares of the home price represent a noticeable shift since NAHB’s previous construction cost survey in 2007, Emrath said, but that is largely because of a change in survey methodology to provide a better, more representative sample of single-family construction across the country.
Included in the revamped survey design were more houses in non-metropolitan areas, where land prices tend to be lower and lot sizes larger. Census figures for new residential construction in 2008 show that the average lot size was .36 of an acre for new homes sold in metro areas compared to .65 for homes sold outside those areas.
The average size of the surveyed homes was just over 2,700 square feet, and the average lot size was one-half acre.
The average price of the new single-family homes in the 2009 construction cost survey was $377,624. The cost of the finished lot accounted for a little over one-fifth of that price, the cost of construction accounted for nearly three-fifths and the balance came from the costs of construction financing, selling the home and overhead and profit.
Overall, the survey found that the shares of most construction costs remained relatively stable between 2007 and 2009 even with the new survey sample design.
When significant trends were found, said Emrath, they tended to occur along with changes in materials prices. “For example,” he writes, “although framing and trusses remain the largest individual component of construction costs, the share has declined from over 20% to under 16% of total construction costs. This trend was evident before 2009, however, and coincides with a period of generally declining prices for framing lumber.”
At 15.6%, framing and trusses accounted for the largest share of construction costs, followed by excavation, foundation and backfill work (7.1%). Siding, plumbing, drywall, cabinets and countertops, and tiles and carpet accounted for between 5% and 6% each.
NAHB’s research has identified framing/trusses and windows as the two components of a single-family home that have been on the decline fairly steadily since 1988.
Siding and roofing shingles are two components that have been on the rise as a share of total construction costs.
The rising share of costs for roof shingles may be due largely to changes in the price of asphalt, which, according to the NAHB Research Center's annual Builder Practices Survey, commands a dominant share of roughly 80% of the market for single-family detached roofing materials. The Producer Price Indexes produced by the U.S. Bureau of Economic Analysis show prices for asphalt shingles and coating materials increasing by more than 10% annually in 2005 and 2006, and by more than 18% a year in 2008 and 2009.
The Builder Practices Survey suggests that the rising cost-share of siding may be the result of a shift toward more expensive materials. That survey indicates that, since 2002, brick has steadily increased its market share and replaced vinyl as the siding material most commonly used on single-family detached homes.
The survey also found that landscaping and building permit fees have been increasing as a share of construction costs that are not related to the actual physical structure.
Profits amounted to 8.9% of the house price last year, the survey found.
To read the entire report, click here.
For further information, e-mail Paul Emrath, or call him at 800-368-5242 x8449.