How do housing and land costs work?

[cjchaps]

Let's say you a house, on 1 acre of land. In New York City(or the burbs) this house and land might cost $400,000. The exact same house and land plot in the Middle of Iowa might cost $100,000. What makes up the cost difference? Is it the land it's on? Or does the same model of house cost more in New York than it does in Iowa? I assume it's a combo of both, but I'm not really sure?

 

[Yossarian]

demand

 

[Fausto]

It's just what people are willing to pay for X amount of space. Both the value of the land and the house on it increase as you up the population density and the "desirability" of the area. My house was well under $200k (1400 sq feet on 0.25 acre lot) and I live kinda on the edge of Atlanta. Move my house closer in by about 5 miles and it would be $400k or more in certain neighborhoods.

Conversely, if you move my house into a "transitional" neighborhood or one of the ghetto-esqe areas of town and it would be worth about $50k since no one wants to live there.

 

[Vic]

It is a combo of both. Land is obviously a large factor, but materials and labor (especially labor) cost more in some areas of the country than in others.

edit: sorry, I assumed demand as a given and that he was asking if the homes actually cost more to build in different areas. The "3 L's" of real estate are "Location, Location, Location."

 

[cjchaps]

OK. So if you were to build the exact same model house in New York City, and in the middle of Iowa, house much of a cost difference would it be for example?
New York = 250?
Iowa = 200?
Maybe something around there?

 

[flot]

Inside of a given area (like your city or county) it's almost all based on location.

Comparing, say, Florida to Kentucky, it's location plus cost of building. The cost of building in one area could be different from another for a variety of reasons. For instance, in some areas you'd have primarily wood houses, others primarily masonry. You'll also have different building codes and regulations (IE Florida your houses have to be reasonably hurricane resistant). You'll also have local materials (live near a good source of lumber?) that may contribute a good bit to the cost of a house.

I'd imagine though that even if the houses were 100% identical, you'd still have differences in labor and materials costs no matter what. Ballpark I'd guess that you could see anywhere from a 10-25% cost increase just to build the exact same house. (prob 10% deviation in materials, another 10-20% in labor costs). Edit: Note that I'm talking about the price of the HOUSE not the price of the whole package. When you have a house appriased, they give you a land value and a house value. Just for refernece, my 1100 sqft concrete house in florida just appraised at $90k for the house and $110k for the 1/4 acre of land it is sitting on. Given the current rate of property appreciation, in a few years I can expect the house to still appraise for ~$90k, but the land will probably appraise at $120k-130k. The $90k is basically the "replacement" cost of the house, or what it would take to build a new one if it was destroyed.

 

[tcsenter]

What all those people are trying to say:

Supply and Demand

Things like regional labor and supply cost differences are fairly insignificant and do not account for the primary disparity in home and property value to which you're referring. Its the cost of the land that makes the difference between the identical home in Iowa and New York burbs.

There's a lot of a land in Iowa and relatively fewer people wanting to live there. (high supply + low demand)

There's not a lot of land in New York suburbs and relatively more people wanting to live there. (low supply + high demand).

A home with a build cost of $100K in New York burbs will cost $100,000 to build in Iowa, give or take 10% or less for regional labor and supply costs. Its the real estate that will substantially add to that build cost. The cost of land per acre in some areas can easily run twice the cost of building the home itself. I've seen residential land selling for more than $100,000 per acre, I've seen it selling for less than $10,000 per acre.

Location, Location, Location!

Of course, if you aren't the urban-dwelling type and prefer gigs like a ranch in Iowa, such as myself, then it works out extremely well for you.