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Home Values Vs Construction Costs

The construction sector and related fields get affected when buying a new home costs more money than used to build it. A recent study estimated the average home value to replacement cost ratio for the largest U.S. metro areas and related measures.They found that in coastal metros, new home construction is almost 4 times the cost of rebuilding existing structures. Developers are competitive because construction costs influence developers decisions about what and whether to build which determines how the home prices evolve. Portland did not make the top 10 highest average land value whereas places like California and New York’s average home value exceeds $3 million. Coastal metros high cost of housing isn’t driven by construction costs but by high cost of land.


When an area has a high home value to replacement ratio, it means that there is an unmet demand for living. Even though the city of Portland is growing rapidly, it’s unmet demand is controlled. The average land values and average home values are around the same which means that the difference between home value and replacement cost are closely related. But it is seemed to believe that upzoning will dampen housing appreciation. Also, upzoning will allow more people to live in the Portland metro area which could reduce population growth on the southside and make traffic and congestion worse in the Portland area. Congestion is unwelcome by those who reside in Portland but the benefit from accommodating more people could be worth it.

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