The same house costs $500,000 more to build in California than Texas

Melody Hahm
Senior Writer
The same house costs $500,000 more to build and sell in California than Texas, according to new analysis from John Burns Real Estate Consulting.

Collectively, Texas, Florida and California account for nearly one-third of all new building permits in the U.S. in 2017. California is the most populous state in the nation, but it ranks No. 3 when it comes to new home construction.

“In Texas, they have one new home community under construction today for every 10,000 people. In Florida, they build one new home community for every 20,000 people. In California, the ratio is one community per 45,000 people. The result is that [home builders] who build and sell substantially the same house in Texas for $300,000 as they build in California for $800,000,” writes Pete Reeb, a principal at John Burns Real Estate Consulting, in a new analysis.

California is a unique — and difficult — market for three primary reasons, according to Reeb. It can take 10 years or more to get a master-planned community approved for development, according to John Burns Northern California expert Dean Wehrli.

“And it’s a BIG IF that you will even get approvals, while subdivisions that already have substantial conformance with local zoning laws can take three to five very expensive years,” adds Reeb.

Additionally, California’s development fees are exorbitant. Homebuilders have to pay $25,000 to $75,000 in fees for a single home to be built in some areas of the state. Of course, that expense pushes prices higher for homebuyers.

Finally, although California has plenty of land to construct on, there are many restrictions on where homebuilders can and can’t build. “Wide swaths are off limits or require environmental remediation per state laws,” said Reeb, citing CEQA, or the California Environmental Quality Act, which mandates state and local agencies to identify the environmental impacts of their actions and to mitigate any controllable impacts.

(John Burns Real Estate Consulting)

The big three housing markets dominate homebuilding

While California makes homebuilding both a lengthy and expensive process, Texas and Florida help facilitate the application and permitting process that home builders have to go through to ultimately break ground. This is important given how regulation and costs are hurdles that home builders often cite as reasons they can’t meet pent-up demand for housing and depressed levels of homes for sale.

“The housing shortage has resulted in home prices that are more than 2.4 times higher in California than in Texas and 2.2 times higher than in Florida,” writes Reeb. “Half of California homebuyers pay more than $537,900 per house.”

Texas is the leader when it comes to new homes permitted for construction, with 169,885 new permits in 2017, according to John Burns. The supply seems to match the demand, given Texas added 288,000 new jobs last year — more than any other state.

“Texas has a very efficient permitting process to accommodate the growth, resulting in lots of new housing getting built at very affordable prices,” notes Reeb.

Florida is the go-to destination for retirees — and that narrative isn’t changing anytime soon, said Reeb. The continued demand results in plentiful housing at reasonable prices. Last year, Florida approved 118,548 permits for new home construction.

Despite the challenges, California issued 113,320 permits to round out the top three markets in the U.S. for new home construction. “California builders have become the leaders in providing high-density housing solutions, selling new homes at the most attainable prices possible that also allow for a reasonable builder profit margin,” said Reeb.

Melody Hahm is a senior writer at Yahoo Finance, covering entrepreneurship, technology and real estate. Follow her on Twitter @melodyhahm.

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