What it costs to build housing: hard costs, soft costs, labor, materials and contingency, and why construction cost sets the floor under new rents.
Construction is usually the largest single line in a housing budget. It divides into hard costs (the physical building: labor, materials, site work, the general contractor’s fee) and soft costs (architecture, engineering, permits, legal, insurance, financing fees and the developer’s own overhead). A contingency sits on top of both because estimates are never exact.
Construction cost enters rent through capital. Every dollar spent on the building must be borrowed or invested, and both lenders and investors expect to be paid. Under the assumptions in our shared model, each $10,000 of cost per unit requires roughly $68 per month in additional rent, so a change in the price of lumber, labor or a building-code requirement is also a change in the rent a new building must charge.
Articles in this section explain where construction dollars go, why costs differ by building type, what drives them up or down, and what any given requirement adds to the cost of a unit.
We build an illustrative 120-unit apartment project on paper, line by line, and show where every dollar of the rent it requires comes from.
Housing 101
Land control, due diligence, entitlements, permits, financing, construction, lease-up. Each stage of building housing has costs and risks, and each month between stages adds to the rent the finished building must earn.
Construction Costs
Cheaper cabinets and counters move the required rent of a new apartment by about $34 a month. Land, parking, building type, fees, time and interest rates move it far more. Here is the scale of each lever.
Parking
Surface, tuck-under, structured or underground: each kind of parking space has a construction cost, and each dollar of it must be recovered in rent. We work through what a parking requirement adds to a 120-unit project.
The evergreen pieces that explain the mechanics behind everything else in this topic.
Housing 101
Land control, due diligence, entitlements, permits, financing, construction, lease-up. Each stage of building housing has costs and risks, and each month between stages adds to the rent the finished building must earn.
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