this post was submitted on 14 Aug 2023
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The profit margin per square foot on a large "luxury" housing unit is a lot higher than on a smaller, cheaper unit. Plus you won't get people upset that you're eroding the price of their homes by building cheaper ones, so NIMBYs won't stop you.
As someone who works with people in residential construction fairly often, this is the answer - and it's why they don't build new "starter" homes anymore. It's very difficult to turn a profit on a single family home that would be considered affordable most places.
Basically, its very little extra effort and expense to build a luxury house compared to an inexpensive one, and your profit margin goes from very thin to decent.
Anecdotally in my area, most residential new construction is going to retirees who have a nest egg and the sale now very expensive house, or couples who sold an inherited house. Occasionally there are people who are remotely working or people building as an investment property, but they're in the minority.
This is the weird part. It's not normal by any means, and there must be something causing it to happen.
The normal situation is that cheaper homes are more profitable by area.
From what I've seen this has been turned upside down by... well essentially automation, just not the kind everyone is afraid of.
Between better techniques and tools, a lot of construction is significantly faster than it used to be, to the point that a job that's smaller has enough... I guess "opportunity" cost that it can be significantly less profitable.
Let's say I'm a plumber. In the 80s, I would use copper pipe and have to solder all the connections - even a small job would take a long time - on the order of days. If I do a small house it takes way less time than a big house.
But now instead I would put in long lines of PEX with crimp on connectors. It's like 4x as fast so it should be 4x cheaper right? Except now I have to drive to 4 different jobs to work all day, set up and tear down 4 times, deal with 4 different customers and invoices, etc. OR I can do 1 big house and make essentially the same money since I cut out all the extra work.
Add to that that most people are going to use more expensive finishes on larger houses that I basically just take a percentage of, and they might request something specialty and working on small affordable houses seems like a terrible business plan.
It’s pretty simple: The cost to make the structure of a house is pretty much the same for luxury or basic models: Framing, electrical, foundation, etc.
But if you throw in some cheap granite countertops, a fancy tub, and up-market flooring suddenly it’s a luxury house and you can charge twice as much, despite it not costing nearly twice as much to build.
Same thing goes for cars: A luxury car just has different fabric and some badges, but they charge way more than a comparable econobox because it’s “luxury.”