SACRAMENTO, Calif.–(BUSINESS WIRE)–The California Homebuilding Foundation today released a comprehensive report, “Cost Drivers Impacting Housing,” that details the multiple factors that can drive up the cost of building a new home in California. The report outlines the typical cost drivers associated with the average new home construction, and how individual costs are distributed to add up to approximately $650,000 for a 2,400 square foot new single-family home. The report summarizes that the high cost drivers include development fees, excessive regulations resulting in delays, and materials costs and shortages.
The new report provides an analysis of the general cost drivers of a new homebuilding project and also analyzes what factors can influence those costs. For example, development fees typically account for 10-20% of a project’s costs, but an also vary widely throughout California’s cities. The report cites the Terner Center for Housing Innovation at UC Berkeley and states that, in Sacramento, development fees are $21,000 per typical single-family home; but in Fremont, development fees are $157, 000 per typical single-family home. Additionally, some municipalities use new homebuilding projects to fund other community needs, including: transportation projects, public art or farmworker housing. According to the report, projects can also be subjected to additional negotiated fee costs not found in any public fee schedule, in exchange for approval of the project.
In regard to general development costs and materials costs, the report states that the cost of land and converting it into a parcel in which development is ready to commence – remains the largest component of the cost of building a home. A finished lot can account for as much as 40-45% of the price of a new home – with some higher coastal markets seeing up to and over 50%. Additionally, builders identify materials shortages – primarily framing lumber – as a cost driver as well.
Finally, the report also identifies the delays associated with the California Environmental Quality Act compliance process as a key cost driver. Specifically, the report identifies how the entitlement process is often severely delayed – adding years of expensive delays related to litigation– due to CEQA challenges before a project can break ground.