Struggling to afford a home in California? Why building might be cheaper

Despite high cost of living and housing scarcity, California still remains one of the most-sought after places to lay down roots and build a life.

But as home prices continue to hover around historic highs, many prospective home buyers have been priced out of the market while they wait for mortgage rates to go down or for the market to crash entirely.

But new data released from StorageCafe and Yardi, a California-based real estate and property management software company, found that Californians might actually have a unique opportunity to own the home of their dreams — starting from scratch.

Yardi found that, while it doesn't make the best financial sense to build in all states, California is one of the exceptions where it may actually pay to build a home.

The Golden State is the second-most cost-effective state for home building in the United States, trailing only Hawaii. Yardi's data estimates that it could be more than $200,000 cheaper to build a home from the ground up, rather than purchase one that's already standing.

"The median land price of $59K per acre, applied to a median lot size of 0.17 acres, results in a combined home building cost of around $495K, compared to a median home price of $700K," Yardi says.

Yardi surveyed land prices per median lot size nationwide and determined regional costs of making a contract with home builders. The data also includes an additional 10% administrative costs to tack on to those prices for things like permits, lawyers and surveys.

Building vs. Buying a Home: Potential Savings by State

State	Total Building Costs (Land, Construction & Other Costs)	Median Single Family Home Listings Price	Difference Building vs. Buying Costs
Hawaii	$551,000	$1,045,000	−$494,000
California	$495,000	$700,000	−$205,000
Colorado	$492,000	$600,000	−$108,000
Utah	$538,000	$635,000	−$97,000
Virginia	$361,000	$458,000	−$96,000

Courtesy of Yardi

Obviously, the data doesn't tell the whole story and there are a lot of other factors to consider. For instance, land prices in the Bay Area or major cities like Los Angeles and San Diego are going to be higher than land in the deserts or the Central Valley. Also, California is notorious for extra hurdles and red tape when it comes to building, meaning it might take significantly longer to build the home of your dreams compared to other states.

It's also important to note that, while building may be cheaper, the 0.17-acre median lot size is the smallest in the nation.

Still, the data can be considered encouraging for people who want a home but feel like there's no path to ownership.

Yardi spoke with Scott Berens, CEO of Balsamo Homes, who described building a house in California as "cost-effective."

"While purchasing land, hiring professionals, and paying out for the raw materials can add up to a hefty price tag, these tend to compare favorably to the listing prices of homes in the same area," Berens said. Berens added that San Francisco and Los Angeles may be more expensive for house-building projects, but there may be better value for people looking to build in places like Marin County or San Diego.

To read the complete state-by-state breakdown and read more about Yardi's methodology, click here.

Happy house and/or land hunting!

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