In fact the only thing shrinking for new construction is the size of the lot they’re built upon, according to the National Association of Home Builders. A survey of 3,100+ builders was conducted in August and September of 2013 and shows that this trend is happening across all levels of home building. That is to say, the increase in the average price, cost and size is not a result of high-end homes gains pulling the average up or lower-cost and mid-level homes gains pushing upward.

Framing and trusses account for the largest share of construction costs, and a rise in the cost of lumber is most likely to blame, the NAHB report notes. The cost of softwood lumber rose 40 percent between April 2011 and April 2013, according to the Bureau of Labor Statistics’ Producer Price Index.

“Although lot sizes are shrinking, both the cost and size of the home are on the rise,” Heather Taylor of NAHB’s Economics and Housing Policy group notes in the report. The average home in 2013 was built on 14,359 square feet (or about at third of an acre) of land, the report notes. The average home boasted 2,607 square feet of finished area. The average share of the home’s sales price which goes to construction cost jumped from 59% in both 2009 and 2011 to 61.7% in 2013. Finished lot costs, accounting for the second largest share of the sales price, dropped from 22% in 2011 to 19% in 2013. Although the cost of construction per square foot remained relatively stable in 2009 and 2011 ($82 per square foot, and $80 per square foot, respectively), it jumped to $95 per square foot in 2013.

NAHB broke down the cost of construction on new single-family homes into the following eight major stages of construction:

• Interior finishes account for 29.3% of construction costs
• Framing: 19.1%
• Exterior finishes: 14.4%
• Major system rough-ins: 13.4%
• Foundations: 9.5%
• Site work: 6.8%
• Final steps: 6.6%
• Other costs: 0.9%

Economic data remains sketchy; the debate over whether or not the economy has recovered or is just being manipulated by creative interpretation of the stats is an ongoing debate. What’s not debatable is that new construction is back, is more costly than ever before and that buyers should always have an agent represent them when building a new home. 

Source: “Cost of Constructing a Home,” National Association of Home Builders (Jan. 2, 2014)

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