Current cost per square foot to build a house

In certain scenarios, you may get more dream house for your buck if you build a new home rather than buy an existing home. So how much does it cost to build a house? Is it cheaper to build or buy a home?

The cost to build in 2023 will have a wide range, anywhere from $111,000 to $452,000, with a national average of around $281,000, which does not include the land. In comparison, the U.S. Census Bureau puts the sales price of a new on-site home at an average of $517,700 in September 2022.

In this post, we’ll break these costs down for you, show you some estimates by square foot, and give you examples of what you can afford with your budget.

There are plenty of reasons to build a new house rather than buy an existing one. To start, everything will be new, from the carpets to the sinks to the dishwasher. And you can influence the design, so your house is just as you envision it.

Step one: Talk to an expert!

Even if you’re just day-dreaming at this point, it’s never too early to ask a local real estate agent for advice on building a house.

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Single-family home prices skyrocketed in 2020 as people moved out of apartments and into individual houses, looking for more space during pandemic lockdowns. The increases continued in 2021 and through 2022.

With existing-home inventory low and the median price of existing single-family homes being just shy of $400,000, according to third-quarter 2022 data from the National Association of Realtors (NAR), it might seem cheaper to do it yourself, especially if you live in an expensive area.

Your precise cost will vary depending on factors like the region where you want to live, the square footage you have in mind, and the materials used to build. There’s also a price difference between a custom home and a production build, where developers have planned subdivisions with various lots and floor plans to choose from.

Let’s dive into the details.

Breaking down the cost of building a house

According to Chad Hackmann, regional partner at Alair Homes Arlington, it’s been his experience that people who want to build their own home tend to enjoy the process. “You build your own house because you want exactly what you want, and you want it in a certain way,” he says. Maybe the size of the windows is important to you, or you want to position the kitchen so it catches the morning sun.

Your interior and exterior finishes will have a huge impact on your budget when constructing your dream home.

Land: varies by location and plot size

Whether you’re buying a developed lot or untouched land, the property plays a significant role in the overall cost to build. The cost to purchase a lot varies significantly depending on the size and location of the land. It could be as little as $3,000 or as high as $150,000 or more.

The amount of lot preparation required also needs to be calculated into your building costs, which HomeAdvisor estimates between $1,300 to $5,600. This can include expenses such as soil testing, land excavation, grading, and surveyor fees.

According to the National Association of Homebuilders (NAHB), the U.S. median lot price is $55,000. But in some parts of the country, such as the New England and Pacific areas, lot values surged 67% and 39%, respectively, in 2021, bringing lot prices to new historic highs in those regions.

To cover these costs, financing it is something many buyers need to consider, as land loans are often separate from new construction loans. Nadia Aminov, a Baltimore, Maryland, real estate agent with 18 years of experience, was herself put off by the financing process.

“If you don’t have cash to pay for the piece of land, you have to get financing. First, you find the parcel, and you finance the purchase of the land. Then you finance the construction of the house, but these are two separate things,” Aminov explains, adding that the combination can be a complicated process.

Foundation: $8,609

The average cost to install a foundation is $8,609. While a simple slab is on the lower end, if you want to create a basement (to potentially furnish later), costs increase with more material, reinforcement with rebar, and additional excavation.

Framing: $20,000 to $50,000

Building your house into your desired shape, a process called framing, costs about $20,000 to $50,000. Since framing typically requires wood, keep in mind that lumber prices have been soaring since April 2020, a trend that could increase this aspect of your home-building costs.

Roof: $10,000

On a national average, a new roof typically costs $10,000 to install. However, this estimate will go up if you want options beyond the traditional asphalt shingles, or if you have a larger-than-average roof.

Thinking about adding solar panels to your new roof? Budget about $20,000 after tax credits, or you might consider a leased solar panel option.

Appliances: $3,000 to $15,000

Your new house will also need new appliances, like a refrigerator, dishwasher, and washer/dryer. If it’s your first time buying large appliances, it’s a good idea to check out price ranges so you can add these items to your calculations.

Key systems: $17,000 to $72,000

It’s not as exciting as choosing countertops or paint colors, but don’t forget about the key systems your home will need. A new HVAC typically ranges from $5,000 to $10,000. As for electricity, the average cost to wire a new home is $3 to 5 per square foot. Plumbing is another big line item. New construction plumbing costs can range from $1,500 all the way up to $17,500. For each system, your home’s total square footage will be a key factor in determining your overall costs.

Finishes and fixtures: $42,000 to $175,000

Dreaming of granite countertops for your kitchen? This high-end option will come at a premium cost ($40 to $100 per square foot). Choosing solid hardwood flooring ($7.80 per square foot) will also cost you.

The average bathtub and liner installation will run you $5,400 while a walk-in shower averages $6,641, but can be up to $10,000 per shower, if you decide to go fancy.

Keep these aesthetics in mind when it comes to your budget, especially if you are concerned about resale value.

Permits and regulation: $93,870

Perhaps you’ve heard that it’s becoming more expensive to build due to sheer red tape. You’ll pay for each residential permit, from foundation to fencing and driveways to roofing, and all those permits add up. A 2021 study by the NAHB found that the cost of clearing regulatory hurdles comprised 23.8% of the final purchase price of a new single-family home.

Of this amount, about 10% is attributed to regulation around developing the lot, and the remainder is attributed to regulation during construction. Each addition to the house can require its own permit with associated fees, and, as you can imagine, it adds up quickly.

Additional features: Varies depending on choices

Maybe you’re interested in personalizing your house? A 10-by-10 deck costs about $2,200, on average. Want a pool? That’ll cost, on average, $35,000. Need landscaping help? Depending on how much landscaping work your property requires, this cost can range widely, from $1,000 to $40,000 or even more.

These features also have additional upkeep costs that need to be considered, so don’t forget about those.

Square footage impacts cost

In July 2022, new home construction usually cost around $150 per square foot, with luxury and custom options costing $500 or more per square foot. The average new-construction home size is between 2,200 square feet, and the total average construction cost is $281,000.

But here’s an important note. Building the house is just one part of your overall costs. You also need to consider the finished lot cost, financing, overhead, marketing, sales commission, and profit.

How does that break down for the square footage you have in mind?

Depending on your location and choices, you should expect to spend:

Keep in mind that building a new house takes much more time than buying an existing one, so you’ll need to make sure you have a place to stay during the building process. From finding the land to breaking ground to finalizing the interior, Hackmann says to figure at least a year. Jon Ahern, an elite real estate agent in San Francisco’s Bay Area, says the timeline is more like 22 months.

If time is a critical factor in your decision process, then building a house may not be the right choice for you.

Cost varies by region

Region is one of the biggest cost factors in building your own home. Just as it would cost more to buy an average house in San Francisco than in St. Cloud, Minnesota, the same goes for building a house in different regions of the country.

According to the 2022 U.S Census Bureau preliminary data, the average sales price for single-family homes in Q3 were as follows:

While HomeAdvisor reports that new home construction averages $150 per square foot, that doesn’t include the land or ancillary costs, such as hooking up to utilities, drainage, or grading, which could add up to $200,000 for a flat lot.

It’s important to pay close attention to those ancillary costs. For example, if you’re building in a rural area, you may need to consider the price of installing a septic system or sewer hookup, propane for heating, and how much concrete you’ll need to connect your property to the road.

Also, consider local regulations, as residential construction restrictions vary by city, county, and state. Check out the land rules and regulations before embarking on construction. An experienced agent can help with this, too.

Designing a dream home vs. a developed home

It can be enticing to build a custom home on your ideal lot, and with a personalized floor plan, but it’s cheaper to go with a developed lot where you can still have that unlived-in charm. Doing so can save you time, energy, and stress, says Ahern, emphasizing the “stress” part.

“You’re having a well-known — whether it’s a small local builder or a national builder — provide you a brand new house,” he says. “You get a one-year warranty on most items in the house, and then you get a 10-year warranty on structural items. Those are big benefits.”

To design your floor plan for a custom home, hiring an architect will cost about $5,786, on average, with their actual fee being somewhere between 5%-20% of the total project cost. However, you can save a bit by working with a draftsperson instead, which will cost around $1,800.

A rough breakdown of the overall costs of building a home will look like this:

• Labor: 30% to 60%
• Materials: 40% to 50%
• Administrative, design, and permit costs: 10%

It’s a good idea to have a 20% buffer in your budget for unexpected expenses.

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Getting your team together

Ahern often works with clients who are tearing down properties to make room for new construction — an approach that can have significant tax benefits that make it easier to afford a new house, he says.

Christina Sanchez, part of the Matt O’Neill Team, points out that while there are many factors to building the right team, the first step is always to “find a good real estate agent.”

“As a professional, we can iron out your goals, see what you’re looking for and pinpoint a geographical area, and connect you with builders.”

The home builder your agent connects you with should be able to walk you through the expected costs and timeline in detail. Your agent can also work with you to identify suitable vacant lots or tear-down opportunities.

What you can afford with your budget

The nice thing about building your own house is you don’t have to adhere to someone else’s vision. You’re in charge! And that means you can be creative in finding ways to keep your costs down. Here are approaches for every budget:

If your budget is under $100,000

Tiny is big these days! Even Ikea has gotten into the tiny house business. Having someone build a tiny home for you can cost from $41,380 to $99,800 — but you can build one yourself for less.

These dwellings typically sit on trailers, so they are mobile. Tiny houses are generally considered to be less than 600 square feet.

You do need to find or rent the land to place them and meet the building codes of that area, but they are an affordable option.

However, if you want higher-end materials and luxury appliances or want to further customize, tiny homes can run up to $150,000, as seen in the ones built by Tiny Heirloom and featured on HGTV’s Tiny Luxury.

If your budget is under $150,000

If you don’t want to go tiny, you can still save money by going small. Small houses are about 1,000 square feet and cost about $125,000 to build.

These homes typically consist of two small bedrooms and a living space. They may also have one bedroom, with roomier common areas or bathroom space, or three small bedrooms. The exact cost and what you can get will vary depending on the region where you’re building, as well as the materials and labor costs.

Another affordable option is a pole-barn house — a barn-like structure supported by poles driven into the ground. As with any house, the price will vary greatly depending on size and location, but you can expect a pole-barn house to cost roughly $113,000. That includes the house itself ($60,000), plus other costs like plumbing, permits, and electricity. The total doesn’t include labor, however.

Another idea that could work with your budget: shipping container homes. Yes, shipping containers are not just used for transporting goods on ships, trucks, and trains; now, they’re being used as trendy — if a bit blocky — homes for people looking to occupy a smaller footprint. Basic homes can run from $10,000 to $35,000, while larger homes may run closer to the $100,000 to $175,000 range. A shipping container home can cost about half as much per square foot as a traditional home.

If your budget is under $200,000

On average, you can build a modern home of about 1,000 to 2,000 square feet with this budget. This equates to a one- to four-bedroom home, which can cost as little as $100,000 (but up to $400,000). So much depends on how you use the square footage you can afford.

If your budget is under $300,000

You can get up to 3,000 square feet of construction with this budget. You could choose to build a three-bedroom house, or you could bump up the high-end appliances and finishes on a two-bedroom home.

Another option is a modular home, a type of living space that comes pre-assembled. These homes typically cost about $100 to $200 per square foot, which translates to an average of $270,000 for a 1,800-square-foot home.

If your budget is under $400,000

For this budget, you could build a large three-bedroom home, which typically costs $300,000 to $600,000, for up to 3,000 square feet. You’ll sacrifice a few amenities for square footage, but you can always add them in later when you have additional budget.

If your budget is under $500,000

With a budget of half a million dollars, you can more comfortably construct a four-bedroom home, or up to 4,000 square feet. Or you could go for a smaller home with more luxury — think granite countertops, hardwood floors, and high-end appliances.

If your budget is under $1 million

With this cushy budget, you have a lot to work with. This is where you can construct a 5,000-square-foot home or a luxurious smaller home with aspirational flooring, design, cabinets, and appliances in a more expensive region of the United States.

New construction cost predictions in 2023

Mortgage rates are expected to continue to be higher in 2023, with experts predicting rates anywhere from 5% all the way up to 8.5%. Compared to early 2022’s low of 3.22%, even 5% may feel steep. However, interest rates are still at historical lows.

Unfortunately, construction supply chains have not yet recovered from the impact of the Covid-19 pandemic. As of June 2022, physical inventory was 20% below pre-pandemic levels, but the price for that reduced inventory was 12% higher. This is unlikely to fully recover in 2023.

Sanchez’s homebuilding clients in 2022 were impacted by the supply chains, “There was a huge delay in windows and garage doors. The timeline has gotten a little quicker but what we’re seeing here as hold up now moving forward, is a huge permitting delay,” which has also been due to the pandemic

While all of this can seem doom-and-gloom, it isn’t necessarily true.

The average homebuyer in 2021 overpaid by 30% on a home they hadn’t even seen but got a 3.5% APR. Now, as the market cools, buyers are able to pay below market rates but at a 6% APR. This means 2023 may be a good time for buyers who have been waiting on the sidelines to jump in and get their dream home.

And for those looking to buy new construction, Marc Minor, Co-Founder and CEO at Higharc, has good news.

“New construction homes are going to continue to be built and brought to market in line with the pace we were seeing in 2019. We’ll see some cooling from 2021’s frenetic pace in 2023, but our country’s need for new homes and the relative strength of demand means new construction still has a critical place in the market.”

Is it cheaper to build or buy a home?

If you’re experiencing sticker shock as you peruse available houses, it’s not just you. Existing-home sales have reached a median price of $398,000 in Q3 2022, according to the National Association of Realtors.

By comparison, when you include the purchase of a lot and land preparations, the cost of building your own home will likely be higher. The largest swinging variables include the land, the location, and the home’s square footage. As noted above, the U.S. Census Bureau recently reported the sales price for a newly-built on-site home at $517,700 (and a median of $470,600).

One way prospective homeowners can control costs is to have a fixed contract with the builder, so if the price of materials continues to go up, the consumer won’t see the impact.

But if you’re looking to build, factors like quality, newness, and design may rank above cost on your priority list. After all, it’s hard to put a price on that feeling of knowing you’re the home’s first owner — and that you brought it to life.

Whether you’re looking to build custom or on a developed lot, or if you’d like to buy an existing home, a top-ranked agent can help you.

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