The city of San Jose is the largest in Northern California and is known to be the heart of Silicon Valley. The city is also recognized as one of the wealthiest major cities in the country and has the third-highest GDP per capita in the world — after Zurich, Switzerland, and Oslo, Norway. Aside from having a booming high-tech industry, it is close to multiple ivy league schools.
Because of its proximity to the global center of technological innovation, tech industry moguls have chosen San Jose to be their home; the city houses the most millionaires and billionaires in the country per capita. Consequently, this drove the local housing costs to an all-time high with a rate of 936% from 1976-2001, which is the highest housing-cost increase in the nation.
With the COVID-19 pandemic ravaging the world, the home building costs in this city were also on the rise. Supply chain issues overwhelmed prices and drove the costs on a continued upward trajectory. Given the unique circumstances and current status of the industry, future homeowners and developers are asking, “how much does it cost to build a house in San Jose?”
The Cost of Building a Custom Home in San Jose
Despite it being relatively expensive to build a home in San Jose, the majority of its residents do own and have built their own homes. The U.S. Census Bureau reported that the national average cost to build a home is around $397,800. The National Association of Home Builders (NAHB) conducted their own research and market reports coming up with a higher estimated value of $485,128. Additionally, Forbes reported that it costs around $100-$500 per square foot, which is around $200,000-$1,000,000 for a 2,000-square-foot home.
Homebuilding in the West costs the most compared to every other region, with a median contract price of $158.73 per square foot. The state of California and the city of San Jose increased this value up to $202.72 per square foot and $460 per square foot, respectively. More specifically, value-conscious homes start at $206 per square foot, mid-tier homes start at $371 per square foot, and luxury homes cost the most, starting at $549 per square foot. The value increases or decreases depending on the size, material, and level of complexity.
As home building costs in San Jose increase year by year, careful planning must be done to ensure getting the best value for your home. Aside from the factors mentioned above, several other costs must be considered when building a home. This includes the construction fees, cost of land, permit fees, architectural fees, and more. We have divided those into two separate categories: the hard costs and the soft costs.
Hard Costs are costs that directly relate to the actual building of the structure of the home. With the continual increase in construction costs, San Jose has an estimated median price of $176.52 per square foot, but can range anywhere between $142.08 – $210.96. As stated above, the price of a home depends on the kind of home you desire. Luxury custom homes can cost anywhere between $375.93 to $576.28 per square foot while standard homes range between $147.70 to $224.33 per square foot. As for cost-efficient homes, prices are in between $87.49 to $133.99 per square foot, with the average being $103.17 per square foot. All in all, the total cost of all the construction work can amount to around $500,000-$750,000. Other factors such as location, neighborhood, and design may also affect the cost.
Adding extra amenities to your home can demonstrate creativity, personalize, and make a home more comfortable. Aside from personal preferences and convenience, it can also be a form of investment as these features typically increase the value of your home. Keep in mind that these can be quite costly and may require your decision early on in the pre-planning process as some additions are built together with the main house.
The national average cost for building home additions is $46,000. The absolute value is tricky to determine as it varies depending on the project. With San Jose, its average is $107,541 and usually ranges from $59,619 to $155,463.
Inground pools are popular among homeowners, especially in San Jose, where the city experiences 301 days of sunshine year-round. These types of pools add the most value to homes and are also aesthetically pleasing. Generally speaking, its price ranges from $25,000 to $80,000 when including the waterfall and swim-out spa feature. Lagoon-style inground pools, however, cost around $100,000 or more. For California specifically, homeowners usually pay around $20,204-$48,196 for a standard pool. This value may rise depending on the size, format, and custom jobs, such as extra landscaping for concrete pathways and stone pavers. The materials used also play a huge part in the overall costs, with concrete pools running from $35,000-$65,000, while fiberglass pools and vinyl-lined pools range from $20,000-$60,000 and $20,000-$40,000, respectively.
Aside from these values, you also have to keep in mind the amount of utility and maintenance that comes with this home addition. The estimated cost is around $500 to $4000 annually.
Home offices have been growing in popularity ever since the COVID-19 pandemic required companies to adopt a more flexible type of working environment. Building a home office ranges from $100 to $550 per square foot. Depending on its size and customization, a more general price range is $15,000 to $80,000. This value also rises as you add custom features such as lighting, closets, built-in bookshelves, or soundproofing.
While pools and home offices have been the most common home additions as of late, there are other amenities you can add to your home. These can be built together with your home, or it can be added later as soon as you have the budget or see the need for it. The following list is the estimated value of each amenity in San Jose, according to HomeAdvisor:
- Garage: $27,604 – $51,413
- Deck: $6,176 – $17,893
- Patio: $2,671 – $8,620
- Covered Porch: $23 – $110 per square foot
- Sunroom: $150 – $300 per square foot
- Mudrooms: $4500 – $30,000
- Outdoor Kitchen: $18,000 – $32,750
Soft Costs are the costs not directly related to the building of the house. Soft costs include extra fees you need to consider, such as architectural, design, and land costs. In addition to these fees, other details such as permits fall under this category for its paperwork, insurance, compliance documents, and certifications.
Cost of the Land
According to a 2018 research article, land prices were equivalent to $2,800,000 per acre (approximately $64 per square foot). With the California Association of Realtors reporting that the median single-family home is estimated to be around $1,300,000 and land developers not paying more than ⅓ of the final sale price, calculations would put the median land costs at $433,333. However, the COVID-19 pandemic coupled with high demand also pushed land costs to surge, with recent lot listings in realtors.com reaching as high as $184 per square foot — roughly $370,000 for a 2000-square-foot land.
Permits and Other Fees
According to HomeAdvisor, permit fees in California can cost around $2,104 – $3,490. Permits for standard residences can be as cheap as $2,000 while high-end, luxury residences have permits that can go up to as much as $4,256. This leads to an average of roughly $2,668 for permit fees in the area. Other miscellaneous fees such as a draftsperson fee can cost at an estimate of $2,566 – $4,666 and structural engineer permit costs around the price range of $435 – $1,395. As with other factors mentioned above, it is important to consider what style of home you choose when making your budget; this affects the price for permits as well.
Architecture and Design Fees
According to Architects Promatcher, architectural costs comprise around 14.71% of the total cost of building. An estimate of around 14.35% – 15.07% make up the construction cost with this percentage being on the rise; however, this is subject to increase also depending on the size and design of the home. In terms of hourly rates, architects cost an estimate of $100-$300, yet again the type of work can also influence the cost. With the design fees, it is estimated to be around 6%-10% of the overall construction costs, according to Adam Mayberry — managing president of Mayberry Workshop.
With the trend of increased home costs, costs may continue to be on the rise, and with the low home sales in San Jose, affordable housing may become an even more prominent issue especially with the ongoing pandemic.
How do the custom home building costs in San Jose compare to nearby cities?
California is one the most expensive states to build a home in. It also has a high cost of living, 49.9% higher than the national average. Housing costs significantly affect this value. The average price of homes in the state is $717,854, according to Zillow. It increased by 21.8% compared to the previous year’s median home value of $589,000. More specifically, Zillow reported that the homes in San Jose-Sunnyvale-Santa Clara metro roughly cost $1,477,055. It is forecasted to rise by 5.9% next year, bringing the value up to $1,564,201.
For San Jose specifically, homes typically cost around $1,303,422–a 19.6% increase from last year’s $1,090,000. On a construction level, its estimated range is at $400 to $600 per square foot. This value includes the labor, materials, and impact fees but excludes the land costs, which can be 200%-300% more expensive than home construction itself.
We also gathered data from the online contractor platform Buildzoom (BZ), showing the value for recently built single-family dwelling homes according to their building permits. Houses in the San Jose-Sunnyvale-Santa Clara metro area costs $215 to $555 per square foot–Sunnyvale with $180-$372 per square foot and Santa Clara with $238-$1,030 per square foot. With the other cities that surround San Jose, the value per square foot for each are as follows:
- Palo Alto: $383-$616
- Newark: $179-$345
- Campbell: $191-$430
- Los Altos: $231-$474
- Cupertino: $212-$760
- Los Gatos: $392-$759
- Saratoga: $333-$477
- Milpitas: $255-$688
Major Custom Home Building Cost Trends Across the Web for San Jose
Major home building trends in San Jose involve the rise of home costs because of the lack of sales. This lack of sales has drastically increased the cost of living in the city, resulting in an annual salary of around $203,000. In addition, the national average income needed to buy a house is roughly around $60,770. In a city like San Jose, people are hard pressed to find an affordable residence with the current state the market is in. Only around 22% of San Jose homes fall under the category of affordable housing while 80% of homes are out of the average resident’s budget. However, with this in mind, it is worth mentioning that Realtor.com provided data displaying cities that are positioned to have their housing markets grow. One of the cities is San Jose, which presents an unchanged market but is predicted to soon see a decrease in its prices.
Another study done by Smart Cities Prevail presented that 71% of construction falls under hard costs while soft costs take up around 33% of the costs, splitting between architectural fees, permits, contractor fees, and design fees. Carefully analyzing this split may encourage residents to efficiently manage their home-building budget that can ultimately lead to a somewhat affordable housing despite the expensive costs.
What Leading Custom Home Builders and Architects that Serve the San Jose Area Say
We have reached out to several construction and architecture firms that serve the city of San Jose to get their insights regarding the current trends and forecasts in the industry, together with the estimated price range for their services.
According to Erik Bergstrom, owner of EBCON Corporation/Hughes Construction, the current inventory of new homes in the Bay Area is still limited compared to the demand of new home buyers. Because of this, the firm is anticipating steadfast sales in both design and construction works for 2022 to early 2023. However, the major labor shortage and supply chain concerns continue to be unpredictable, and prices are ever-increasing until solved. The firm is yet to see any signs of stabilization and predicts that this issue may still be a major obstacle for the next 5-10 years. Erik advised homeowners that they should be flexible and ready to select alternative products and look for materials made locally and can be readily available. “Plan, plan, plan. Don’t rush the design, and don’t rush the build,” he added. As for the average cost of the firm’s services, they offer value-conscious homes at approximately $475 per square foot to $525 per square foot, while mid-range high-end custom homes are priced at $525-$750 per square foot and $785+ per square foot, respectively.
KC Customs, a professional custom home building firm in California, gave a slightly lower building cost, with a price range starting at $350 up to $850 per square foot. Specifically, value-conscious homes are priced at $350 per square foot, mid-range homes at $400-$450 per square foot, and high-end custom homes at $450-$850 per square foot. The firm’s president, Kevin Capps, also confirmed that the lack of skilled laborers and the supply chain issues are major problems that the construction industry is currently facing. With the laborers, they are foreseeing that this problem would diminish in the next 5-10 years as younger generations are not keen on entering the skilled trade. The supply chain issues are still proven to disrupt project timelines as lead times become lengthier up to 6 months. On the bright side, the lumber prices have significantly decreased, according to Kevin.
CEO Mehdi Vatani of Valley Home Builders also sent the firm’s price range for their custom homes and their insights on how the COVID-19 pandemic affected the industry. Their value-conscious homes range from $300-$350 per square foot, and mid-range homes are $350-$450 per square foot. High-end custom homes cost the most ranging from $450 to $550 per square foot. Adding to the effects of supply chain issues, the firm estimated that this brought 20%-30% delay in terms of the building timeframe; that’s beside the cost increase of at least 30% in materials. Fortunately, the demands are relatively stable and are still strong. The firm is looking forward to reduced pricing by 10-15% over the next 1-2 years as the supply chain issues hopefully recover by the third quarter of 2022.
The Future of San Jose Residential Construction Industry
The future of residential construction for San Jose seems to be heading towards a more expensive market with the constant increase of prices. However, the city of San Jose is currently experiencing a strong seller’s market. In addition, this strong market has resulted in a decrease in inventory which may pose a problem when building houses in the city. In terms of home sales in the city, there has been an increase of 4.84% above the average price. This has been a continuous trend throughout the past few months and may continue to the end of 2021. These stats pose an opportunity to evaluate the living conditions of the city which can result in more detailed costs and more intelligent decision-making. As the COVID-19 pandemic continues to make its presence felt, cost management plays an integral role for homeowners to decide which city best fits their lifestyle. These stats give a glimpse of how the city may perform in the near future, but it is essential to keep in mind the constant increase in costs and the uneven supply and demand currently going on in the market.