With limited inventory and home prices at record highs, many Americans feel buying a ready-made house is impossible or outside of their budget. Building a home from scratch is an attractive, but costly alternative, but with construction costs growing as well, is it cheaper to build a house? A new StorageCafe study reveals where homebuyers will find it cheaper to build rather than buy [1].
Key Takeaways:
- In California, over $200K can be saved on average when building a house instead of buying one.
- In states surrounding Washington DC — Virginia, Maryland and Delaware — almost $100K can be saved.
- Rocky Mountain states — Colorado, Utah, Montana and Idaho — occupy more top spots than any other region does for home building vs. buying costs.
- In Hawaii, purchasing a house costs almost twice as much as building one.
- The Midwest states are the most cost-effective for buying a home — the costs of building one are from $64K to $178K higher.
- Western and South-Atlantic states prove to be the best places to build instead of buy.
- In California, no less than $200K can be saved on average, while around half that amount can be realized in states such as Colorado, Utah and those close to Washington DC. Away from the contiguous US, Hawaii can offer house builders great savings.
- In the Midwest, South and Northeast, meanwhile, lower house prices tend to make purchasing a home more attractive, though Florida and Massachusetts favor building.
Hawaii houses list for over $1M while constructing one costs half that
Hawaii has the highest single family home median listing price of any state, just over $1.045M — that is approaching twice the overall cost of building a house there, which stands at around $551K. The attraction of building in the Aloha State increases when considering the 0.62-acre average lot size for homebuilding — almost double the national average — and many lots for sale in Hawaii give access to beaches and spectacular views.
"The median house price in Hawaii is typically higher than most other states, making buying an existing home significantly more expensive than building a new one from the ground up. Even so, constructing a residential property in Hawaii can still be costly compared to building on the mainland," confirms Nick Mueller, director of operations at HawaiianIslands.com [2]. "The cost of building a new home in Hawaii can be substantial, with estimates ranging on average from $185 to over $400 per square foot.... typical costs for new construction on the mainland range between $80-160 per square foot before factoring in land fees or other related expenses.
California leads Pacific Coast states favoring building rather than homebuying
The cost of building a home in the West can be considerable. But owing to comparatively high single family home listing prices in the states along the Pacific Coast, the savings made there by building a new home are some of the highest in the country.
"Building a house in California is becoming increasingly cost-effective," says Scott Berens, CEO of California real estate experts Balsamo Homes. "While purchasing land, hiring professionals, and paying out for the raw materials can add up to a hefty price tag, these tend to compare favorably to the listing prices of homes in the same area. That being said, house building in California has unique challenges due to the varied climatic conditions throughout the state. Right now, places like San Francisco and Los Angeles may be more expensive for house-building projects; however, several other locations in California, such as Marin County and San Diego, may provide better cost-efficiencies for housebuilders."
California stands out as the mainland US state where building a home looks most advantageous compared to buying one. The cost of constructing a home in the Golden State ranges around $495K, representing a saving of around $205K compared to the median listing price for single family homes of $700K. It should be noted, however, that the median lot size here is one of the nation’s smallest at 0.17 acres, though that should still be enough for a home with that all-important swimming pool.
Washington State is in 11th position in the ranking of financial advantages that can be realized when building a home, with anyone who chooses that option instead of buying one able to save around $66K. Combined building costs are about the same as California’s at $493K, but this is compared to a much lower median house listing price of $559K. Land for building on is reasonable at a median cost of $44K per acre.
Oregon has considerably greater median residential land costs at $113K per acre, but savings of $43K can still be made by building rather than paying the median price of $545K for a ready-made house. Building costs can be a little more expensive in Oregon than in other West Coast states but building away from the big cities tends to lower the amount required.
Rocky Mountain states give savings of around $100K when building a home
The mountainous, western states of Colorado, Utah, Montana and Idaho are all in the top-10 for saving money when building a home. In addition, Wyoming, which also has Rocky Mountain views, is in the top half of the ranking of states in this regard. The region’s southern desert states of Nevada, Arizona and New Mexico tend to have lower home prices, making home building there look less profitable.
Colorado can offer the biggest aggregate savings in this region when choosing to build a home, no less than $107K, assisted by a rather reasonable median land price of $43K per acre, applied to a median lot size of 0.18 acres. This results in a combined home building cost of around $492K, compared to a median home price of $600K. The state has both building opportunities in cities with thriving employment markets and in more remote yet beautiful locations.
To the north, Montana and Idaho can allow savings of around $84K and $70K, respectively, for anyone looking to take the long way round to getting a house. The median cost of buying a house in both states is less than $600K, so this more northerly region is a little cheaper for anyone buying a house off the peg. Montana’s homebuilding numbers include the added advantage of a 0.36-acre median lot size, compared to Idaho’s 0.21 acres.
High home prices in Utah's Summit and Wasatch counties make building much more cost effective
Utah has been a rapidly up-and-coming state in recent years, with a booming tech sector and real estate prices to match. The median land price of around $234K per acre is in fact the highest in the nation, resulting in a total cost for developing a median-sized lot — which is 0.21 acres here — of $538K. However, that still looks good compared to a median house listing price of $635K, a $97K difference.
Among the Utah counties with available listings, Summit County gives builders the biggest savings, no less than $1.7M. The large median lot size of 0.38 acres results in a hefty price tag of $176K and a total building cost of $677K. But this is dwarfed by this sought-after region’s median house listing price of almost $2.5M. Wasatch County has the next best savings for builders at $843K, with a house listing price of around $1.5M and despite an even higher median lot price of $189K. Rich County offers lower profits of around $185K when building — the median lot purchase price of $82K is offset by a house listing price of $760K — and Washington County gives a small saving of $15K.
At the other end of the Utah spectrum, Cache County is best for buyers, and the total building costs of $643K cannot compete with a listing price of $498K, a difference of $145K, while Box Elder County has the next-best advantage for buyers of around $90K. Salt Lake County, by far Utah’s most populous, unsurprisingly has the state’s smallest median lot size at 0.16 acres but also the highest land prices at $1.3M per acre, and the total cost of building a home ($711K) exceeds the listing price ($636K) by $75K. In Davis, Sanpete, Iron, Utah, Weber and Kane counties it is cheaper to buy rather than build, with differences ranging from $14K to $73K.
States around DC knock a fifth of the price of a new home when building it
The nation’s capital draws workers from all over the country, but they can’t always live there. Fortunately, many can commute from the surrounding states of Virginia, Maryland and Delaware — this region is considered to be in the South of the country for the purposes of calculating building costs. In all these three states, savings hovering around $95K can be made by building instead of buying a home.
Virginia offers a low median price per acre for residential lots of $33K, and their median size here is 0.29 acres. The combined median homebuilding cost of around $361K compares to a median house listing price of approximately $458K, and the state has both communities over the river from DC and scenic areas further out. Maryland offers very similar numbers of $365K and $460K — though the median lot size is somewhat smaller at 0.17 — plus the city of Baltimore and other employment markets.
South Atlantic states offer homebuilders savings with Florida leading the way
Still in the South, Florida tops the list for the amount of savings anyone building a single family home instead of buying one can make, with North Carolina and Georgia also putting money in their pockets.
Florida can offer savings of $76K when building a house, with the cost of residential land being fairly pricy at $108K per acre and the median size being a compact 0.20 acres. While the savings are comparable to those obtained in the Western mountain states, the median prices are considerably lower — the costs of building and buying are $375K and $451K, respectively, meaning the savings would stretch further to pay for more real estate construction work.
Within the Sunshine State, there is a very wide difference in costs across the various counties and regions. For example, Monroe County, which includes the exclusive Florida Keys communities, has the state’s highest-priced houses, with a median price of slightly over $1.5M. And although land is unsurprisingly expensive here too — $1.3M per acre, with the median lot size being a compact 0.14 acres — building a house would generate huge savings of around $1M compared to buying one.
Other places where building gives a big financial advantage include the coastal Panhandle counties Walton and Gulf — the benefit in the former would be no less than $657K due to an average listing price of $1.1M. Similarly, Gulf Coast retirement-paradise counties Collier and Sarasota also favor building, having low land costs of $81K of $108K per acre, with building a home in the former costing around $576K less than a median listing price there of approaching $1M. Other counties rewarding builders are the desirable addresses of Palm Beach and Martin, north of Miami, and Orange, which includes the employment-magnet city of Orlando.
Anyone wanting a house in or around Magic City should know that Florida’s highest land prices of $2.5M and $1.7M per acre, in Broward and Miami-Dade counties respectively, make buying far more economical than building on a median-sized lot there. Interestingly, inland counties are often the ones that most favor buying a ready-made residence, with Washington and Jackson in the Panhandle making purchasing $145K and $128 cheaper and Putnam and Bradford near Jacksonville leaving buyers with averages of around $100K in their pockets — in all these cases, although total building costs are not exorbitant at less than $400K, median listing prices are less than $300K.
To read the full report, including more data, charts and methodology, click here [1].