The Pie: An Economics Podcast Building Costs vs. Housing Prices: Why Construction Isn't Driving the Crisis
Aug 19, 2025
Chad Syverson, a distinguished economics professor at the University of Chicago, shares his insights on the housing market's complexities. He reveals that construction costs and housing prices have become 'completely decoupled' over the last 75 years. Syverson challenges the belief that rising building costs are to blame for increasing home prices, highlighting broader economic factors at play. He discusses significant historical trends and regional influences, emphasizing that the housing affordability crisis extends beyond just construction expenses.
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Prices And Costs Have Decoupled
- Construction costs and house prices used to move together but have diverged in recent decades.
- In the last 20–30 years, house price growth has far outpaced construction cost growth nationally.
Material Costs More Uniform Than Labor
- Building material costs vary less across cities than labor and contractor costs do.
- Materials are tradable so their prices are more uniform while labor-driven costs show more local variation.
Land Is Separate From Construction Costs
- The analysis excludes land prices when measuring building costs.
- Land values are part of house prices but are not captured in the construction cost index.
