Our understanding of zoning, land use, and prices depends strongly on understanding construction types. For the purposes of this blog, we’re limiting ourselves to three common classes of construction techniques in the US, that together comprise the vast majority of homes in the US: low-rise, mid-rise, and high-rise.
Before we go through the list, it’s really important to note: we’re comparing construction costs only, and completely excluding the cost of acquiring land. One way to think about this is: if you inherited a piece of empty land, how much would it cost to build homes?
The first technology is low-rise, wood-frame construction used in detached single-family homes and small apartment buildings. This is the most common construction technique in the country and the most inexpensive class of construction techniques we’re considering. This construction technique comes in a dizzying array of forms: ranch houses, craftsmans, Victorians, townhouses, duplexes, triple-deckers, fourplexes, sixplexes, twelveplexes. But despite the varying appearance and design characteristics, there are a lot of commonalities. All of these types have roughly similar costs to construct per square foot, all can be built without an elevator in most building codes, and all are between one and three stories tall.
The next step up from low-rise, wood-frame technology is the mid-rise apartment building of four to seven stories. This type of development requires elevators and thus an expensive concrete elevator core and usually consists of “stick and brick” construction over a concrete podium. It is at least twice as expensive per square foot as similar quality single-family housing — more if it includes structured parking — but uses less land per unit.
The next step up from mid-rise technology is the high-rise, which requires concrete or steel framing to the top, multi-level parking garages or underground parking, and compliance with stringent fire and building codes. High-rise construction is at least twice as expensive as mid-rise construction per square foot.
|Stories||Land per unit||Construction costs||Construction technique|
|Mid-rise||4-7||Medium||Medium||Concrete + wood|
|High-rise||8+||Very low||High||Concrete or steel|
The most important thing to notice here is that there’s a tradeoff between construction types: the more units you can fit on the same amount of land, the more it costs to build per square foot. The same relationship doesn’t strictly hold within construction types: the cost of building low-rise is pretty similar per square foot whether you’re building ranch houses or triple-deckers.
Let’s look at that on a chart:
The tradeoff of land costs vs construction costs means that different construction types have the lowest total price per unit based on different land costs. In areas where land is very cheap, it’s cheapest to build low-rise. As land gets more expensive, it’s cheapest to build mid-rise. Even more expensive, high-rise becomes cheapest. Having a single-family house in the suburbs may be inexpensive, but buying a two million dollar parcel downtown and then using it for a single family is the height of luxury!
There’s a number of factors we’re not considering in this analysis:
- Manufactured and mobile homes cost much less to build per square foot, but depreciate (i.e. fall apart) much quicker. These are a special case that we don’t consider.
- For every type of construction, it’s possible to build much more expensive by adding high finish-out costs, like gold-plated toilets. We’re looking at costs for a typical finish-out.
- You could split out a fourth, even denser technique “supertall” from “high-rise.” Supertall would simply add to the existing trend; it’s even more expensive to build than high-rise.
- Developers often split construction costs into two categories: “hard costs” (labor, equipment rental, materials) and “soft costs” (architecture, engineering, permitting). Hard costs can vary considerably from region to region and soft costs can vary considerably from jurisdiction to jurisdiction.
- Soft costs especially can vary considerably between “volume builders” who develop hundreds or thousands of similar houses at the same time, and “custom builders” who design a site-specific or customer-specific house. This is most true in low-rise but there are a few “production builders” of high-rises.
All of these factors add considerable complexity to decisions individual developers make, but they are largely irrelevant to the analysis presented on this blog, or else they can be added as extra wrinkles.