I live in a quite expensive part of the country. Okay, cool, I understand that, I live in a place that has quite a lot of both physical and governmental restrictions to building, so land is scarce and land prices must be high. Well… land prices are high, but that’s not apparently the whole story.
We’re buying our first house, and we went to talk about homeowners’ insurance with our agent. She told us that in the event our house were destroyed, it would take $250-300 per square foot to rebuild. (I believe that her numbers are probably a little high but essentially correct.) Okay, it looks like around here a 1000-square-foot house goes for about $500k. So $250k-300k of that is apparently the price of the house, so that although the land is a substantial part of it, the house is worth at least as much.
I don’t understand this. I know that labor costs are higher here, and materials might be a bit higher, but I don’t understand how the actual house can be worth so much more than house+land in other parts of the country. Put another way, I don’t understand what makes rates here $250-300/sqft while where my husband’s family lives it is more like $60-75/sqft. Also, ten years ago everything around here was worth about half as much. So I also don’t understand how rates here jumped basically by a factor of 2x in ten years, as labor incomes and material costs have not gone up by that factor in the same amount of time.
Maybe there is some sort of building monopoly? I would have thought that the free market would make it so that if contractors were overcharging, someone else could just move here from, oh, rural Indiana, start a home contracting business, and undercut all the competition. Is building some sort of cartel? Do you have to get some sort of permits that are hard to get, thus nixing the possibility of my hypothetical rural Indiana native from competing?
ETA: Something else I thought of-- maybe permits are really, really expensive?