Consider the ubiquitous pizza. How do you like yours? With extra pepperoni and mushrooms? With peppers and onions? With one topping or the works? Picked up piping hot from the pizza shop? Or from the grocer’s freezer and baked in your oven? Maybe you’re the adventurous soul who makes their own dough and cooks their own sauce. Do you value convenience or quality? The next time that pizza is on your dinner menu, what type will it be?
House costs are all upside down at the moment, and that makes build versus buy decisions frustrating. They are frustrating because they aren’t logical. In my own neighborhood, according to Zillow, the same floor plan has sold for $426k and $275k only 15 months apart and is now “worth” about $230k. That is a range from $164/sf to $88/sf. Same house, same materials, same builder, same neighborhood. The house didn’t become cheaper to build; there were just fewer customers and they were willing to pay less. Not surprisingly, the builder went bankrupt, because they were no longer able to charge enough to cover their costs.
A new builder’s taking over the abandoned lots and was upfront in saying that their prices weren’t based on what the houses cost to build, but on what the market would allow. As demand increases, they will raise their prices as much as possible. Tract house prices are based primarily on the supply of and demand for houses. Custom house prices are based primarily on the supply of and demand for materials and labor.
At the moment, the supply of houses is driving down prices, not because they suddenly cost less to build, but because there are more of them than there are consumers ready and able to buy them. When the economy is in balance, prices of tract and custom houses are more in balance with each other.
Driving down the road yesterday past a residential development with banners promoting houses at $189,000, I saw a sign flipper promoting a $4.99 pepperoni pizza. If you wanted extra cheese, it would cost more. If you wanted sausage, mushrooms, or olives, it would cost more. If you wanted a different size, it would cost you more.
At the grocery store, I saw frozen pies for $3.99, $5.99, and $7.99, but of course, you got just the toppings in the box with no choices. You can’t exactly tell DiGiorno you’d like them to customize your frozen pizza.
If you’re the handy sort, you might instead buy Italian 00 flour, Roma tomatoes, buffalo mozarella, and make and bake your own. You probably won’t save money versus buying one, but you’ll get the exact quality Sicilian pizza you want.
And so it goes with houses. There are prepackaged ones that come with a fixed design and a fixed price tag. Upgrades may be possible, but they usually cost disproportionately more than the base house features. The dimensions, layout, color, fixtures, and finishes are determined by the builder with limited input from the people who will be living there. Because they are built in quantity, and built with limited interaction with the homeowner, there can be price advantages which somewhat make up for the house being an imperfect match to the owner’s needs. Of course, if the market reverses from a buyer’s market to a seller’s market, then not only do you have limited input, but you are also at a pricing disadvantage. I don’t doubt that as soon as economic activity picks up, so too will the price on the sign flipper’s board, and what was $4.99 will become $6.99, just as what was $189k will become $259k.
There are also factory-built houses. Because of the compromises in quality, and the convenience of their construction, they can offer savings similar to those frozen pizzas that are cheap, but taste cheap, too. With factory built houses, you accept structural and design trade-offs, and a cheaper price is the reward for that compromise.
And then there are the custom-made pizzas…errr, houses. They’ll have every feature you choose, and be made exactly to your specifications. It’s harder to save money this way, especially if you’re choosing and using all the best ingredients—how reasonable is it to expect that the best ingredients and best quality product will have the lowest cost? But there are advantages to this path—assuring yourself of the best quality; having the exact features you need without any waste; having a product that completely reflects your tastes.
And, if you plan carefully…very carefully…you can still usually get what you want and stay within a fair budget. The planning involves being honest about what you really need and what’s superfluous. Forego the extra cheese, because it’s bad for your diet; forego the third bathroom because it’s bad for your budget. Often a smaller space, or a dual-use space, can provide for more of your needs if it’s designed thoughtfully than a larger house that wastes space, with the bonus being that smaller usually costs less. Smart choices make the product that’s best for you.
All that’s left now is deciding which dorky metaphor to close with, hoping that I’ve given you food for thought, or reflecting that pizzas are like houses, in that they are both better when they are round.
Jim Kaslik is the principal designer of Cloud Hidden Designs, LLC, an exclusive designer of residential domes since 1997.