Let’s say I owned a 1/4 acre lot in the Mid West somewhere that is valued at $50K. I build a perfectly nice house there costing $150K and I have a house valued at $200K.
Now say I have another 1/4 acre lot located in the middle of a city valued at $1M. How much would it cost to build the exact same equivalent of the $150K house on this plot of land? Would it be $150K? $175K? $500K?
If there is a cost increase, where is it coming from? More expensive labor? More expensive materials? More taxes? More permitting costs?
The reason I ask is because I live in one of the hottest real estate markets in the country right now and there is new development springing up like crazy. A lot of the new buildings being put up are the cheap, boxy condos which are pretty shoddily built. It seems to me that when the underlying land is so expensive, construction costs become almost a rounding error compared to the cost of land and it seems like a no-brainer to build higher quality housing.