Homebuilding Cheaper Than Homebuying In CA, With Northern And Southern Counties Waging A Savings War

Key takeaways

• It’s cheaper to build than to buy a new home in more than half of CA counties (62%)
• Santa Clara County comes first for savings resulted from building as opposed to buying, followed by Orange County
• Southern CA counties are best for homebuilding vs. homebuying savings, with eight of them falling into this category
• Buying a home is more convenient than building one in the Central Valley

Owning a home is still high on our list of priorities, even as low inventories and a competitive real estate market make homeownership a distant dream for many. This holds true for most of the country, but especially for the traditionally expensive California housing market. Even with the recent cooling off of the housing market, supply is low compared to demand and the state is still home to some of the priciest real estate in the nation.

There might be a way to skirt the traditional path to homeownership here, and that’s building a home. Building may be, in fact, cheaper in California than buying but the location can make or break the deal in terms of savings.

To find out whether homebuilding is a more profitable way to own a home than buying, we zoomed in on the 20 Californian counties and compared savings resulting from buying vs. building a home. We factored in land prices per median lot size and inflation-adjusted county-level costs of making a contract with home builders. We also added 10% to the price to cover administrative costs and other fees. Then, we compared the total cost of construction to the house prices in the area and used the difference to come up with a ranking of counties by the largest potential savings you could achieve by going with building over buying.

Overall, it’s cheaper to build a home than to buy one in California, with 13 out of the 20 counties saving you money if you decide to build your house from scratch. Budget-wise, building is more favorable in Southern California whereas Central California caters best to those interested in buying.

Southern CA counties generally more affordable for building prospects while two northern counties generate the biggest savings

While nationally it’s slightly cheaper to buy a home than to build one, that’s not the case in California. A Golden State home is listed for, on average, $700K, while building one here costs an average of $495K. That’s a difference of around $200K in savings, on average, though there can of course be substantial fluctuations county-by-county.

Santa Clara County comes first for the highest savings resulted from building as opposed to buying a home, a whopping $1M+. That’s mainly due to the county anchoring the San Jose metro area, which comes with some of the highest home prices in the state if not the country. As it happens, homes in Santa Clara County average over $1.6M, whereas building a home is almost three times cheaper – roughly $545K. The construction price includes the price of land ($311K/acre), adjusted by the median lot size and also for inflation.

Nevada County is the second northern Californian county to take a place on the podium thanks to the notable savings made when you choose building over buying a home here. You get to save over half a million dollars when you choose this route. While homes can set you back over $1.1M here, taking the construction route can cost you only around $617K. Besides other construction expenses, that also includes the price of the average lot size – over 13K sq. ft. – which is one of the most generous among the Californian counties on our list and also somewhat more than the national average of 9,148 square feet.

Still in northern California, Sonoma County also stands out for the savings you can make if you build a home as opposed to buying one, amounting to almost $324K. While homes come with a price tag inching close to $900K, taking on the project of building your own home from scratch will cost you about $576K in total. That also includes the price of the median lot, which offers, on average, more than 12K square feet of space, over 5K more than the average Californian lot. In the WFH age, having a little extra space for your home so you can enjoy the outdoors can make a world of difference.

Taking a detour to the south of the state we get to Orange County, which takes the silver for savings made when building over buying a home, to the tune of $580K. As this county includes some cities in the Greater Los Angeles area, housing costs a pretty penny here. In fact, an OC home costs close to $1.3M, while building a home from scratch costs over $717K in total. That’s some way over the state’s average of $494K, but it’s still more affordable than buying a home.

Living in Santa Barbara County can bring homebuilders savings of about $428K as opposed to buying a turnkey home. That’s the difference between the average listing price for a home ($1.1M) and the total cost of building a home, which hovers around $716K. While the cost of buying the land is quite high ($211K), you get a generous 10,890 square feet of space per the average lot, about 3,000 square feet more than the average Californian home lot.

Forgoing homebuying in favor of building can bring savings of about $389K in San Diego County. With homes averaging a sale price of $895K and building a home costing you upwards of $500K, it’s easy to see that homebuilders are at an advantage here. Moreover, the price of a home lot alone is one of the lowest in California, just shy of $20K. And you also get to enjoy a lot more space – whether you choose to make your home bigger or prefer a large backyard – with the median home lot exceeding 12,000 square feet.

Los Angeles County, which anchors the LA metropolitan area, can also provide prospective builders hefty savings – which reach $345K – when compared to buying a home. With LA being a hot real estate market, homes for sale average close to $900K. That’s a lot more than you’d pay to build a house from scratch when you factor in the price of land, labor and other costs. Overall, building a new home in Los Angeles County can cost around $554K. As far as space is concerned, you’d get around 9,000 square feet of space for the average home, on par with the national average, but a little more than what you’d typically get in California.

Buying a home is more affordable than building only in a handful of CA counties

While homebuilding steals the show in most Californian counties, there are a couple of them that buck the trend, with about half located in the Central Valley. However, Imperial County, which comes first for savings resulting from buying over building a home is located in Southern California. You’d save about $166K when buying a home here as opposed to building one. Buying a home costs about $329K, whereas building one would take a larger chunk of your income, an average of $495K.

Kings County comes second for savings made by homebuyers compared to homebuilders, amounting to over $120K. That’s due to the fact that building a home here is more expensive ($505K) than buying one ($385K).

Anchoring the Bakersfield metro area, Kern County also emerges as an area where homebuying is more financially advantageous than building, with savings exceeding $100K when you go for buying a home instead of building one from scratch. You also get to enjoy more space in or around your home here, with the typical lot size averaging around 9,100 square feet, somewhat more generous than the state’s average.

California is no exception when it comes to the various hurdles prospective homeowners face in achieving their goal. However, building a home seems to be a more affordable pathway to homeownership in most counties in the Golden State, with a few notable exceptions where homebuying is the more viable option financially.

Featured expert opinion

Prof. John Yeressian, MBA Real Estate Department Chair

1. As a long-term homeownership investment, is it generally better to build or buy a home in California?

It has become very difficult to find open space to build on in metro areas of California such as Los Angeles, San Francisco and San Diego. Generally speaking, it is always better to build a home than to purchase an existing home, depending on available resources, like labor, and prices of raw materials, such as lumber. Over the last three or four years the cost of building in California has increased as contractors have left the state to assist insurance companies to build homes after the flooding devastation in Texas and hurricane damage in Florida, replacing thousands of destroyed homes. This has reduced available labor in California and increased labor prices.

2. How easy is it to buy land in California for residential building these days?

California is one of the largest states in the country and has plenty of land in areas that are not very desirable, such as the outskirts of the Inland Empire. However, land in the metro areas is extremely scarce and the challenges to build have become increasingly more difficult with California's "Green Code," which requires all buildings to become "net zero" by 2030. That means they have to have enough solar panels to generate all of their own power and reclaim their gray water to reuse for gardening and other areas of the home. This has added construction costs to any land-build projects. Thus, even if you can find land in the metro areas, which is extremely challenging, you will have to overcome the added expenses allocated to new construction.

3. How would you describe California's housing market at the moment?

California's housing markets in its metro areas are under intense demand pressures. Most recently, 1 out of 5 Americans surveyed wanted to live in Los Angeles if they could live anywhere in the world. While we saw an adjustment in prices in 2008-2012, we have not seen any significant price corrections in the last decade and may not see them again unless there is a significant economic recession in the near future.

Methodology

This analysis was done by StorageCafe, an online platform that provides storage unit listings across the nation.

This analysis aims to consider pricewise how homebuying compares to homebuilding in California county by county. To do that, we created a ranking based on the difference in savings when comparing buying a home to building one.

House prices came from Point2 listings as of March 2023.

The cost of building a home was calculated as the sum of land price and the median cost of a contract with builders. We added 10% to account for other costs such as permits, surveys and other fees.

Land price represents the cost of land for residential buildings on March 2023 multiplied by the size of the median home lot. Both metrics were sourced from Point2 listings for new homes for sale in the last five years.

Median prices for median building contracts came from the U.S. Census for 2021 (latest data) and an 8% increase was added to account for inflation.

The analysis does not account for all Californian counties, but only includes CA counties for which we had data across all metrics. Overall, our study analyzed 20 CA counties.

Fair use and distribution

This study serves as a resource for the general public on issues of common interest and should not be regarded as investment advice. The data is true to the best of our knowledge but may change if amendments to it are made. We agree to the distribution of this content but we do require a mention in return for attribution purposes.