Building a home increases the costs of buying land, the process of obtaining permits and multiple inspections. The farther your plan moves away from a standard model, the more expensive it will be. Building lots in urban areas can be prohibitively expensive. The houses are large, bulky and built with many different parts.
In addition, a house contains a wide variety of materials and equipment. Housing construction encompasses practically the entire field of raw material production, while nearly 70 different industries process materials, such as wood, cement, brick, plaster, etc. In normal times, the builder has a wide variety of materials. You can get window frames made of wood, steel, bronze, or aluminum; wood, clay, stone, rubber, cork or fiberboard products; asbestos tiles or tiles, cement, bituminous materials, wood, clay, or stone. Sometimes a piece is made of many materials.
Therefore, asphalt roof tiles can contain felt, asphalt and pieces of stone; windows can have wooden frames, glass panels, steel clips for glass, putty, nails and screws, aluminum strainers, bronze hardware, iron weights, cotton cords, glue, and oil and lead paint. Construction prices increased like most items during the pandemic and for similar reasons. Delayed packages, lack of workers and inflation, in general, are to blame for the high prices that remain today. Given how prominent regulatory restrictions on housing are in online discourse (zoning, NIMBY vs. YIMBY, etc.), I think a lot of people would be surprised that land only represents about 20% of the cost of a new home.
Only in dense urban areas does the cost of land begin to dominate the cost of new housing, due to regulatory and zoning restrictions that limit the number of homes that can be built in a given area. Homes are expensive primarily because they are large, bulky items that require a lot of parts that many workers have to assemble in one place. However, in housing construction there is little conclusive data on the reduction of costs for the industry as a whole as a result of major changes in materials or methods of production. Since all homebuilders receive the same weight in the survey, it outweighs the costs of boutique and luxury homebuilders (who can build only a few homes a year) and underestimates those of builders with larger economies (who can build hundreds or thousands of homes a year).
This high cost of land, in turn, is not because people value having a lot of space for their children to play, but because of regulatory and zoning restrictions that limit the number of homes that can be built on a given plot or in a certain location. This is a lever that developers have to work with when closing a development agreement: they could decide to take the risk and buy cheaper land that is divided into zones for a relatively small number of units, in the hope of obtaining permission to build more on it than is currently allowed. This doesn't even include the materials needed for siding, plumbing, electricity, and other additional aspects of home construction. Due to the wide variety and quantity of parts, building a house is a long and difficult job, and the builder must hire many types of workers, both skilled and unskilled.
Therefore, any type of supply distortion that limits the number of homes that can be built will result in an increase in the price of land. While building a home is expensive and the average cost has been increasing, the most important decision is who you work with to achieve your goals. So, while the price of land doesn't represent a particularly large fraction of the cost of a new home, it's a much larger proportion of the cost of an existing home. The site alone, which is the lot and its improvements, represents a fairly large part of the total cost of a home.
