Feet On The Street – Construction Costs Skyrocket, Insider Insights from the Field
In this two-part interview series, we go behind the scenes with a seasoned developer of single-family tract homes in Southern California. Despite facing intense headwinds, their ability to quickly adapt has been vital for survival. Part 1 dives into the harsh realities of rising construction costs across all major trades.
Rising Construction Costs: A Perfect Storm
Interest rates and inflation have severely impacted the housing market, but that’s just one piece of the puzzle. Our client lets us in on the other significant cost drivers.
Over the past three years, ground up, tract production single family home construction costs have skyrocketed from $79 to $125 per square foot for smaller houses and $85 to $180 for larger ones.
The main culprit? Drastically higher labor costs driven by the rising cost of living.
Concrete Costs at All-Time Highs
Concrete now costs $150 per cubic yard – the highest ever recorded and a 66% spike from just three years ago.”
With a typical 1,500 sq ft home requiring 80 cubic yards of concrete, that’s $12,000 just for the concrete portion of the foundation – a cost that used to cover the entire foundation work.
Utility Costs Add Up
Site development costs have also ballooned, with dry utility material costs like underground electrical and gas lines seeing especially sharp increases. For example, installing 2,200 linear feet of 6″ pipe totaled $65,000 – over 50% higher than historical averages.
Waiting on Switch Gear
Supply chain issues continue to plague certain key components like electrical switch gear. With lead times over 52 weeks, completed projects can sit vacant for over a year, waiting for delivery and installation before receiving permanent power.
The Bottom Line
From concrete and labor to utilities and supply chain constraints, this insider report exposes the alarming increases in construction costs that are raising risks for developers across the board. Adapting quickly has become crucial for survival.
Stay tuned for Part 2, where we dive into declining sales, local factors impacting housing demand, and how smart pivots may be the only path forward.
If you’ve found this information useful but have questions, please contact me on my cell (818) 254-5823. Thank you!
Greg Norris