Bigger is not always better because of additional maintenance costs.
In addition, new homes have additional fees (Mello Roos and HOAs).
New SoCal Homes Won’t Cure Affordability Issues
New construction is not an immediate cure for homebuying affordability headaches because most new homes being built are pricier and larger than the rest of what’s sold on the market.
My trusty spreadsheet (Lasner’s) spotted a Zillow study comparing existing residences sold in May with newly constructed ones in 46 major U.S. metro areas, including six in California.
Developers argue they need to build bigger homes to make the expensive land they buy, plus other construction costs, pencil out financially.
Look at SoCal, using the median results for the six cities studied.
Sales prices for new homes were $1.14 million, or $935,000 for existing ones. So, what’s being built is 22% pricier.
Why? Builders typically sell a 2,020-square-foot house versus 1,585 for existing ones, so the new stuff is 27% larger.
And construction’s only saving grace (coastwise) is that those fortunate enough to afford new construction get a slight bargain in price per sq. ft. — $568 versus $622 for existing homes, or 9% cheaper.
Details
Ponder the new versus “used” patterns within California, ranked by the price premium builders got …
• San Diego: $1.14 million median new vs. $900,000 existing — 27% higher (No. 25) for 2,060 square feet new or 1,480 existing — 39% larger (No. 10) — or $552 per square foot new or $609 existing — 9% cheaper (No. 40).
• Los Angeles-Orange County: $1.15 million median new or $970,000 existing — 19% higher (No. 27) for 1,970 square feet new versus 1,520 existing — 30% larger (No. 16) — or $584 per sq. ft. new versus $636 existing — 8% cheaper (No. 39).•
Inland Empire: $610,805 median new versus $562,500 existing — 9% higher (No. 32) for 1,980 square feet new versus 1,720 existing — 15% larger (No. 30) — or $308 per sq. ft. new versus $328 existing — 6% cheaper (No. 37).
• San Jose: $2.87 million median for new construction or $1.6 million for existing homes — 79% higher (the fourth-biggest gap of the 46 metros).
That bought 2,360 sq. ft. feet new vs. 1,600 existing or 48% larger (No. 4). It cost $1,213 per sq. ft. new versus $997 existing, 22% pricier (No. 7).
• Sacramento: $745,920 median new or $575,000 existing — 30% higher (No. 24) for 2,340 sq. ft. new versus 1,670 existing — 40% larger (No. 8) — or $318 per sq. ft. new versus $345 existing — 8% cheaper (No. 38).
• San Francisco: $1.27 million median new or $1.23 million existing — 4% higher (No. 38) for 1,380 sq. ft new versus 1,570 existing — 12% smaller (No. 46) — or $918 per sq. ft. new versus $780 existing — 18% pricier (No. 11).
Bottom line: This is not just a “greedy builder” problem.
These pricing gaps are primarily the result of a host of policy and marketplace challenges that make it much easier to build high-end housing.
Fancy and expensive new communities are simpler to sell politically in the regulatory process. Premium housing sold to wealthier clientele usually produces fatter profit margins.
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Daniel Dobbs (.org)
Mutual Home Mortgage
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