Why Are New Homes So Expensive?

There are many elements that go into a brand new home. What buyers see and evaluate is the structure itself. However, the land and what is underneath the land, is 20 to 30% of the total cost of the home itself.  Anchorage is not really running out of land as the popular theory goes. But the land we do have for development frequently has marginal soils or wetlands. Class C wetlands allow for development but only when there is a mitigation fee paid by the developer which is calculated on a per acre basis. The fee is paid into a wetlands mitigation bank and, if in Anchorage, is paid to the Greatland Trust, a nonprofit entity.  An acre of Class C wetlands costs about $76,000 to mitigate so development can occur.

Now comes more costs. The Municipality of Anchorage has a little-known document called the Design Criteria Manual. This manual establishes the type of material that goes into the trenches and the amount of gravel for the road bed along with other requirements such as guard rails, lighting, and road grade. This document is changed periodically after peripheral review by a peer group, both internal and external. However, the underlying philosophy, whether publicly acknowledged or not, is to create such a high standard for development that the MOA will be immune from future maintenance and repairs for streets for several generations. Although this is partially understandable due to some shoddy development and substandards in the 1980s which the MOA is now having to repair and/or replace, it creates an extraordinary burden on developers which is passed on to future homeowners. This manual does not receive any public review and is not approved by the Anchorage Assembly. However, the criteria established for development is more costly than almost anything found in the new Title 21. Extra insulation and gravel is several thousand times more expensive than more windows and foundation landscaping.

AWWU also has a design criteria manual and over the years the type of pipe, and the technological requirements for monitoring water flow, has become more and more expensive. In addition, AWWU squarely places the burden for any offsite infrastructure solely on the developer/land owner. These offsites include lift stations, pump stations, and main line extensions. Add that to the cost of a lot for a new home and it becomes clear that it’s not greedy developers or over- zealous home builders that continues to spike the cost of new home construction, but rather changes in design and materials along with the time it takes for the review and approval of these ‘over’ regulations.  Obtaining a variance for any requirement in the Design Criteria Manual can take up to several months and meetings where private and public engineers charge by the billable hour, including travel time.

Buyers measure the value of a home by a cost per square foot, and in comparison to other homes, including resale properties. Rarely, even by an appraiser, is there taken into consideration what it cost to create the lot the home will be built on. It’s sort of like what’s in the ground, stays in the ground, and is rarely understood or taken into consideration.