Why Houses are So Expensive to Build

Find out what's driving housing prices up and why so many people struggle to find affordable housing options.


Builders grumbling about construction costs is nothing new because they can pass those costs along to home buyers. But the latest complaint is starting to gain more notice. Why are houses so expensive to build? Well, according to many builders, houses have become more expensive to build because of permitting fees.

What to Know About Permitting Fees

In Minnesota, John Rask of M/I Home Builders told Minnesota Public Radio that a three-bedroom home in Minnesota costs $60,000 more to build than in neighboring Wisconsin because of permitting costs. That adds 15 percent to the sale price, according to Rask, and is a contributing factor toward a lack of affordable housing.

New building codes, energy requirements and life safety mandates have driven up the cost of a home as well, according to Investopedia.

Other Pricing Factors

Builders are saying it’s not possible to make homes for less than $250,000, because lot size requirements and the price of land also contribute to increased costs of home building. The high price of land nationally has tempted builders to erect larger homes to recoup costs as well, making housing less affordable. Then throw in a small housing supply and you’ve got buyers bidding each other up, creating more expensive housing.

The National Association of Home Builders found that the median price to build a single family home in 2020 was a little over $296,000, however that number rose significantly through the height of the pandemic. Rising material costs and labor costs have also fueled the increase in housing prices, according a report from BuildZoom.

What Could Make Housing More Affordable?

If cities worked to clean up permitting fees and changed zoning laws, builders could construct more houses — albeit at greater density — to decrease the cost of a house. A recession in the economy could trigger a decrease in housing prices as well. And if you’ve heard anything about an inverted yield curve, the country could be headed toward a recession.

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