Why Housing Costs So Much to Build

Housing costs so much to build because every part of the process is expensive and the parts compound. Labor and materials make up most of the bill. Land is scarce where jobs are. Approvals, fees, design work and loan interest add more, and each month of delay raises the total. No single cause explains the price, which is why no single reform fixes it.

The same forces hit subsidized and market-rate housing alike. Subsidized projects can then pick up extra costs from the rules attached to public money. This guide walks through where the money goes, why a subsidized unit can cost more than a market-rate one, and what the evidence says about bringing costs down.

What Goes Into Total Development Cost

Developers call the full price of a project its total development cost. It covers everything needed to turn a site into occupied homes, not just the construction contract.

Much of the soft-cost spending comes early, during predevelopment, before a project is sure to go ahead.

How big is each piece?

Two sources give a sense of scale. They measure different things, so they should not be compared line by line.

• Apartments. A 2025 RAND Corporation study examined more than 140 apartment projects built between 2015 and 2024 in California, Colorado and Texas. Hard costs averaged about 70% of total development cost, soft costs about 20% and land about 10%.
• Single-family homes. The National Association of Home Builders (NAHB) surveys builders on what goes into the sale price of a new home. In 2024, construction made up 64.4% of the price, the highest share since the survey began in 1998. The finished lot was 13.7%, builder profit 11.0%, overhead 5.7%, sales commission 2.8%, financing 1.5% and marketing 0.8%.

Either way, construction is the largest piece. Land takes a bigger share in expensive coastal markets and a smaller one where land is cheap.

What Drives Hard Costs

Labor

Construction is labor-intensive, and builders have reported worker shortages for years. A 2020 study by the Terner Center at UC Berkeley looked at new California projects awarded 9% tax credits from 2008 to 2019. It found that hard costs, meaning materials and labor, were the main driver of rising development costs, and it pointed to a shortage of construction workers.

The workforce also depends heavily on immigrants. According to NAHB, foreign-born workers were 26.3% of the construction labor force in 2024, a record, and about one in three workers in the construction trades. Changes in immigration levels therefore affect how many workers are available.

Materials and tariffs

NAHB reported in 2026 that building material prices had risen about 40% since December 2020, well ahead of general inflation. Tariffs, which are taxes on imports, add to the price of some materials. NAHB estimates that about 7% of the goods used in new residential construction in 2025 were imported.

Lumber is the clearest example:

• A presidential proclamation signed September 29, 2025, placed a 10% tariff on imported softwood lumber and a 25% tariff on kitchen cabinets and vanities. Both took effect October 14, 2025.
• The cabinet tariff was scheduled to rise to 50% on January 1, 2026. A later proclamation postponed that increase to January 1, 2027.
• Separately, NAHB reports that the antidumping and countervailing duties on Canadian softwood lumber rose from 14.5% to 35% in 2025. Canada supplies almost a quarter of the softwood lumber used in the United States.

In NAHB’s April 2025 survey, builders estimated that tariffs added about $10,900 to the cost of a typical home. That figure is an estimate by builders, not a measured outcome, and it predates the lumber and cabinet tariffs above. Tariff rates have changed repeatedly since, including after a February 2026 Supreme Court ruling against tariffs imposed under emergency powers. The lumber and cabinet tariffs were imposed under a different law and remained in place. Supporters of the tariffs argue that they protect domestic producers.

Time, Interest and Fees

Time is money

A project borrows to pay for construction and pays interest until the building is finished and leased. Suppose a project carries an average construction loan balance of $10 million at 8% interest. Each extra month then costs about $67,000 in interest alone. These numbers are invented to show the arithmetic.

Real borrowing costs are in that range. In NAHB’s survey for the second quarter of 2026, average contract rates on builders’ construction and land loans ran from about 7% to 8%, and builders reported tighter credit for the eighteenth quarter in a row.

Buildings also take longer to finish than they used to. Census Bureau data analyzed by NAHB show that the average apartment building took 18.9 months from permit to completion in 2025, compared with 15.4 months in 2009. That count does not include the time spent winning approval before a permit is issued.

RAND found that longer timelines were strongly associated with higher costs. Bringing an apartment project to completion took more than 22 months longer in California than in Texas.

Regulation and fees

Local rules shape what can be built and how fast. Zoning, design review, building codes, parking minimums and fees all carry costs.

• Fees. RAND found that municipal impact and development fees averaged less than $1,000 per unit in Texas, $12,000 in Colorado and $29,000 in California.
• Parking and elevators. The Terner Center found that structured parking and elevators each added about $35,000 to $38,000 per unit in its California sample.
• Opposition. In a 2022 survey of 49 apartment developers by the National Multifamily Housing Council (NMHC) and NAHB, three-quarters had faced neighborhood opposition, often called NIMBY. They said it added an average of 5.6% to costs and 7.4 months to schedules.

Industry groups have tried to total these effects. The NMHC and NAHB survey put regulation at an average of 40.6% of apartment development costs. A 2026 NAHB study put it at 26.4% of the price of a new single-family home.

These figures come from trade associations and rest on their members’ estimates. They count every kind of rule, including building codes that protect safety and fees that pay for roads, sewers and schools. They measure what regulation costs, not what it is worth. The debate is over which rules deliver benefits that justify their cost.

Why a Subsidized Unit Can Cost More

It seems backward that an affordable apartment could cost more to build than a market-rate one. Sometimes it does, and sometimes it does not.

RAND compared apartments financed with the Low-Income Housing Tax Credit (LIHTC) with market-rate apartments built by one large national developer. Per square foot, the tax credit projects cost about 1.5 times as much as market-rate projects in both California and Texas. In Colorado, they cost less, about 0.8 times as much. A 2018 Government Accountability Office (GAO) review of projects completed from 2011 to 2015 also found wide variation. Among the 12 state and local agencies it studied, the median cost of a newly built tax credit unit ranged from about $126,000 in Texas to about $326,000 in California.

Where subsidized projects do cost more, researchers point to four causes.

1. Prevailing wages. Some public funding requires contractors to pay locally set wage rates. Under the federal Davis-Bacon rules, for example, a project with 12 or more units assisted by the HOME program must pay prevailing wages. The tax credit alone does not trigger the rule, but added funding sources or state law often do. The Terner Center found that prevailing wage requirements were associated with costs about $53,000, or 13%, higher per unit in California. Its model could not account for differences in workmanship or speed. Supporters argue that the rules protect local wage standards and support a skilled workforce.
2. Layered funding. A market-rate project usually has two main sources of money: a loan and investor equity. An affordable project assembles a capital stack of many sources to cover its funding gap. In the Terner Center’s California sample, 80% of projects used four to eight sources. Each added source was associated with about $6,400 more per unit, through extra legal work, consultants and delay. See how affordable housing gets financed.
3. Compliance and design standards. Funders often add requirements for energy efficiency, accessibility, community space or durable materials. Federal money can also trigger a NEPA environmental review. RAND noted unusually large architecture and engineering fees on California’s subsidized projects and said they were likely related to prescriptive design rules. Housing for people with greater needs costs more as well. Permanent supportive housing cost the most per square foot in the Terner Center’s sample.
4. Longer timelines. Each public source has its own application and schedule, and one source often must be committed before a developer can apply for the next. A project that misses a deadline waits, while interest, land holding costs and construction prices keep moving.

Two cautions apply when comparing. First, the measure matters. In Texas, tax credit units cost more per square foot but less per unit, which RAND attributed to smaller units. Second, the two kinds of project can count the developer’s pay differently. An affordable developer is paid through a developer fee that is a line in the project budget. A market-rate developer’s profit usually comes later, from rents or a sale, and may not appear in reported development costs.

What Lowers Costs

No lever works alone, and several involve trade-offs.

Federal law has moved in this direction. The 21st Century ROAD to Housing Act, enacted July 11, 2026, narrows environmental review for some housing activities. It also authorizes grants to help local governments adopt pre-reviewed home designs. According to the Congressional Research Service, the grants depend on Congress providing the money.

What This Means for Cottage-Scale Workforce Housing

Small-home formats such as cottage housing test several of these levers at once. Cottages are small, wood-framed and low-rise. They need no elevators or parking structures, and several homes share one parcel, which spreads the land cost. Homes this small can also be built in a factory.

The same format gives up some advantages. A cluster of a dozen homes has little of the scale that GAO found lowers per-unit cost. Roads and utility connections must be paid for by fewer homes. Many zoning codes do not allow cottage clusters by right, so approval can be slow and uncertain.

Financing changes the picture too. Affordable workforce housing aimed at moderate-income households is often built without tax credits. That avoids some of the layered-funding costs described above. It also means less subsidy, so the project has to cost less to build in the first place. See cottage communities and pocket neighborhoods and how workforce housing is financed.

The Bottom Line

Housing is expensive to build because labor, materials, land, time and rules all cost money, and delay multiplies each of them. Subsidized housing faces the same costs plus the requirements that come with public funds, though the size of that premium varies widely by state. The research reviewed here points to undramatic fixes: faster and more predictable approvals, simpler buildings, fewer funding layers and cheaper land.