Buzz
The expense of constructing a house is heavily influenced by factors like location, house size, and the types of interior finishes you choose. Peter Cade/Getty ImagesThere are numerous valid reasons for wanting to build your own home. Perhaps you already have a great plot of land. Maybe affordable, high-quality homes are scarce in your area. Or maybe you’re considering building an investment property to rent or renovate for profit.
So, how much does it truly cost to build a home from scratch? That’s the million-dollar question (and in certain housing markets, it’s literally a $1 million question). The reality is that the costs of home construction can fluctuate greatly based on three main factors:
- Size of the house. A 5,000 square-foot (464 square-meter) house will significantly cost more than a 2,000 square-foot (186 square-meter) home.
- Finish quality and features. Would you prefer luxurious marble countertops in the kitchen and bathrooms, or are you okay with affordable laminate? Premium upgrades accumulate quickly in cost.
- Location. Similar to home prices, construction costs fluctuate greatly by region. Expect higher costs in the Northeast and West compared to the South.
Cost Comparison: Building Your Home vs. Buying One
Based on May 2023 data from the U.S. Census Bureau, the average price for a new single-family home was $487,300, up from $464,200 in 2021 (the median price was $416,300). The typical home-building cost was $392,241, or $153 per square foot, according to the National Association of Home Builders. At first glance, this represents a price difference of over $95,000.
It's important to clarify that these numbers aren't directly comparable. The average sale price of $487,300 covered both the house and the land it sits on. Meanwhile, the $392,241 cost to build a home refers only to the "contract price" charged by the builder for constructing the house, not including the land price if it’s required.
What does this imply? It means that if you already own land, building your home is likely the cheaper option. But if you don't own land, the costs may not be any lower than purchasing a newly constructed home. According to a 2022 survey by the National Association of Home Builders (NAHB) (the most recent data available), the average lot cost was nearly $114,622 for a typical lot size of 17,218 square feet (1,580 square meters), which is the smallest lot size since 2011. This shows a significant cost increase and lot size reduction compared to 2020, when the average lot cost was $90,000 for a 22,000 square-foot (2,044 square-meter) lot.
It’s also crucial to note that the Census Bureau data includes sales of pre-existing homes. The NAHB reported the sales price of a newly built single-family home at $644,750, covering the cost of the home’s construction, the lot, marketing expenses, sales commission, and profit.
Keep in mind that the costs discussed here are based on a contractor-built home. In other words, we’re assuming you hire a general contractor to handle the building process. General contractors typically add 20 to 30 percent to the total cost of building a home, as that’s their compensation for overseeing and managing all of the subcontractors involved.
A 20 to 30 percent markup is significant! You might consider acting as your own general contractor in hopes of saving tens of thousands of dollars, but it might not be worth the effort. Firstly, being your own contractor takes a massive time investment, and if you’re not experienced in construction, you’re likely to make costly mistakes. Furthermore, some subcontractors may charge you more than they would a professional contractor, so the savings from that 20 to 30 percent markup could be eaten up by increased material and labor costs. Contractors also know which building permits are necessary and when to apply for them.
Overall Cost Breakdown
Based on the NAHB’s 2022 survey, the average total construction cost for a 2,561 square-foot (238 square-meter) home was $392,241. This marks the highest cost recorded in the history of this survey.
Once again, it’s important to emphasize that these average costs exclude the purchase of the land or lot, and the costs listed below can vary greatly depending on the geographic location.
That being said, here’s how the NAHB allocates the cost of building a 2,561 square-foot home across different stages of the construction process. (This square footage represents the average size of a single-family home in the U.S., according to the NAHB):
I. Breakdown of Sale Price
Average
Price Distribution
II. Breakdown of Construction Costs
Average
Portion of Construction Expense
Source: National Association of Home Builders, Cost of Constructing a Home - 2022, released Feb. 1, 2023
Where the Building Costs Are
As shown above, the highest single expense in building a home is "interior finishes," which includes every door, light fixture, toilet, countertop, and dishwasher within the house. This category is costly because it covers many different items, each of which could have a significant price tag, according to Paul Emrath, vice president of surveys and housing research for the NAHB, whom we interviewed in 2021.
"There are definitely ways to save and spend less than the typical home builder," Emrath commented. "You could opt for more affordable countertop options, reduce spending on interior trims, or even skip installing a fireplace altogether."
Ultimately, it all comes down to your preferences and budget. It's possible to spend either more or less than the national average on interior finishes, but be cautious of "upgrade creep." Every time you agree to a contractor's suggestion for a slightly pricier appliance or plumbing fixture, the costs will quickly accumulate.
Two other notable categories that saw price increases were "framing" and "foundation, concrete, retaining walls and backfill." "Lumber and ready-mix concrete prices saw extreme fluctuations and reached high levels in 2022, which helps explain the increases in these components from the prior year's survey," noted a 2023 NAHB press release.
Do Construction Prices Change From Year to Year?
That's an insightful question, and unfortunately, the answer is: it varies. Even industry experts struggle to predict which construction materials or components might rise in price soon. Take the COVID-19 pandemic as an example—no one foresaw it, nor the subsequent shortages (and skyrocketing prices) of crucial materials like lumber.
While global pandemics are rare, price fluctuations are a common reality, according to Emrath. "Some materials, like concrete, are imported," he explained. "For instance, a few years back, we saw a concrete shortage when China’s booming economy absorbed much of the global shipping resources."
If you factor in land costs, it tends to be more affordable to buy an existing home than to construct a new one from the ground up. However, in some states like Hawaii and California, building a home is cheaper, The New York Times reported. If you're lacking the funds to build your dream home, you might consider a short-term home construction loan. Some of these loans can convert into a traditional mortgage once the house is completed.
