How Construction Costs Affect Housing Prices

The high cost of housing in the United States can be attributed in part to the high costs, regulatory and otherwise, of building new housing.

2 minute read

May 5, 2022, 11:00 AM PDT

By Diana Ionescu @aworkoffiction

Single Family Residential Construction

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“The main factor driving the cost of all housing is the cost of building new housing,” writes Michael Andersen, arguing that “If we want our cities’ older homes to cost less, either to buy or rent, we need it to be less expensive to create a new home.” As Andersen explains, “in the end, pricing mostly comes down to cost. The price of existing homes is held down (or driven up), more than anything else, by the cost factors of creating new housing.”

If all of us deserve a home, and I happen to agree with the 1948 United Nations General Assembly that we all do, there’s no alternative to taxing and spending. And if we also want to avoid housing shortages like today’s, there’s also no alternative to making homes cost less to build.

According to Andersen, part of the problem stems from unnecessary legal requirements. Some mandatory items, like windows, indoor plumbing, and safe electrical cables, are “well worth their costs.” But “when our governments require homes to be a certain level of ‘nice’ to be allowed to exist, they’re making assumptions that don’t apply to everyone.” Loosening some of these requirements could reduce the cost of building new homes and, thus, the cost of housing. The source article links to Andersen’s more detailed proposals in Willamette Week and his discussion of the issue on the Week’s podcast.

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