Building Height and Construction Costs
A deep dive into my research on the UCLA Housing Voice podcast
What you find as you trace out the average construction cost per square foot of multifamily residential is that you start with two stories, and the cost per square foot actually goes down when you get to three stories. Then it goes up when you get to four stories, then it goes down for five, six, seven. Then it goes way up for eight stories, and then it comes down for nine, 10, 11, 12. Again, we're saying average cost per square foot. That doesn't mean that a 12-story building is cheaper to build than an eight-story building. It's not. [W]hat we're talking about is the per square foot, which means we're going to add more square feet, so the size is going to go up, but the cost may not go up proportionally to the size…
The big things that are happening here, first of all, we're finding that for a lot of these transitions as you add more stories, you're experiencing increasing returns to scale. That's a beautiful thing from an economist's perspective. We go from two to three stories, and suddenly the cost per square foot goes down. That actually means that it could be more affordable to build three stories and have more housing units on a per square foot basis. That's fantastic news, but then that's not true for every transition. It's this jagged line. Why does that not happen when we go from three to four stories? Why does the cost per square foot suddenly go up, and then why does the cost per square foot go up really dramatically from seven to eight?
That’s a snippet from my latest interview on the UCLA Housing Voice podcast, hosted by Shane Phillips at the Lewis Center for Regional Policy Studies.
In this interview, we dive deep into my Real Estate Economics article “Returns to Scale in Residential Construction: The Marginal Impact of Building Height,” co-authored with Purdue economist Mike Eriksen.
Click here to listen to the whole conversation, or check it out on Apple Podcasts, Spotify, or your favorite podcast app.