Why Building A House Costs More Than Buying An Existing Home

Posted on

Building a house should be cheaper than buying an already constructed house, right? After all, the developer has already included their profit margin before putting their development on the market, right? This looks like a good argument, but looks can be deceiving. In fact, experience shows that buying a home is typically cheaper than constructing one; this is especially true if the existing home has been around for some time. Here are some reasons for this discrepancy:

Stringent Policies for New Constructions

Building codes are always changing. New codes come up and existing ones are made more stringent. This means if you are constructing a house today, it's likely to require more stringent code requirements than a similar house that has been in place for a decade or so. These codes have to do with different aspects of construction electrical installations and materials to use, mostly to enhance the safety of the house. This means constructing a house today is likely to require more resources for code-conformity than was used to construct a similar house in the past; this inflates the price of the current home.

High Cost of Land

Buying an empty lot is more expensive than most people think. One reason for this is that finding an empty lot, particularly in a price location, is not easy – such places are more likely than not to have existing developments. Scarcity and high prices go hand in hand. In fact, in most places, the price of an empty lot is not far removed from the price of a complete building on a similarly-sized lot. This makes buying land and building a house expensive.

Rising Construction Costs     

Construction costs, just like other goods and services, cost more today than they did some years ago. This includes both construction labor and material costs. Therefore, building a house today is likely to cost more than a similar house would have cost years ago.

Builder's Economies of Scale

Economies of scale are the primary reason buying a house tends to be cheaper than building one. Property developers are able to secure huge discounts from suppliers and constructors due to the massive number of properties they develop at the same time. There is no way you can compete with them, in terms of cost, when constructing a single house.

Steep Discounts for Homes That Don't Sell Fast

Most residential community builders want to recoup their money quickly so that they can move to new investments. Therefore, once they have recouped their initial investments and made a little profit, they are likely to dispose of the remaining properties at steep discounts. You may be lucky enough to snag such a house at a price far much below what you might have used to construct it.