Houston is America’s fourth-largest city. It is well known for its southern hospitality and urban sophistication. Residents and visitors alike can enjoy its mix of cultural amenities, restaurants, diverse communities, and low cost of living. Additionally, the area’s economy and industries are staying strong in the face of the COVID-19 pandemic. The real estate and new home construction businesses were able to continue operating without big losses compared to other cities.
The Cost of Building a Custom Home in Houston
Houston’s real estate market recorded more than $35 billion worth of property sold, most of which are single-family homes. Meanwhile, the new construction industry showed a 21% increase in new construction permits for residential projects. Houston is reflecting the national trend of high demand for single-family homes.
There were about 18,024 new home construction projects registered by the end of 2021’s second quarter. Builders have also reported that while sales remained robust, sales and traffic volume had started to slightly decline. Concerns about material cost increases and gapping out lots are causing builders to find ways to slow down. Some of these measures include limiting monthly sales rates and implementing price increases. Other builders are also focusing on only building specs and pricing only at the drywall stage to decrease the risk of unexpected material cost increases.
Houston’s strong new-home demand stems from COVID-19 boredom and related housing needs, low-interest rates, and demographic changes. The positive demand is also supported by population growth, which includes domestic and international migration.
Compared to the national average for new home construction—set at about $100 to $155 per square foot—, Houston’s new home construction projects generally begin at $130 per square foot. A more customized home starts at $175 to $250 per square foot. For more high-end and luxury homes, the cost can go up to $300 and more per square foot. The price range will fluctuate depending on the final goal of the homeowner and other factors.
When constructing a new home, there are two types of costs to consider: hard and soft costs. Hard costs are all the expenses that are physically part of the building such as framing, foundation, plumbing, roofing, and flooring. Soft costs cover everything else, such as architecture and design fees, builder fees, permits, and other additional features. Both hard and soft costs cause the overall expenditure to fluctuate, so it is important to understand which aspect is most important to focus on for your own lifestyle.
These are the costs related to the actual physical construction of a new home. In Houston, the average home is said to be at around 2,400 to 2,600 square feet. Custom home builder Aspire Fine Homes breaks down the cost to build a home in the city into four categories. The first is called “the production home,” or a value-conscious traditional home, often built in large batches. These incorporate cost-effective materials, which would bring the cost per square foot to about $100 to $150. Next would be the “basic custom home,” which allows the homeowner more freedom with the design while still keeping a relatively low price of $150 to $200 per square foot. A “custom plus” home would incorporate more luxury features and high-quality materials, costing about $200 to $250 per square foot. Finally, “ultra-luxury homes” provide grand amenities and are often built in upscale neighborhoods. These would cost $250 per square foot and beyond. This would put the total cost to build a home in Houston between $240,000 to $650,000 depending on the level, and possibly higher for more customized structures.
According to Zander Homes, a “Build On Your Lot” developer in the city, the typical Houston home is a 3,000-square-foot, two-story, four-bed, and 3.5-bath home with a two-car attached garage and a 10’x12’ covered back porch on a regular 6,500-square-foot lot. Typical projects like these would start at $165 per square foot at the standard level, which is comparable to a mid-level production home in the suburbs. For homeowners who are looking for a balance of quality and affordability, as is often the case, the build could go up to $185 per square foot. This could include better cabinetry and countertops, more wood flooring, carpets, tiles, crown moldings, taller doors, more brick or stucco, and so on. To put it into perspective, Zander Homes notes that a simple upgrade in choice of appliances could bring costs up by $10 to $15 per square foot, and possibly more to find cabinets and countertops to match.
Other factors to consider in hard costs include building in a flood-zone, which would still cost around $180 to $185 per square foot, with its special considerations such as framing, drainage, and civil engineering design to material choices, exterior façade, as well as permitting and bringing in other contractors and subcontractors. Concrete foundation work is another factor, which Texas-based real estate firm VIP Realty outlines its cost in Texas to be anywhere from $4,500 to $21,000. High-end countertops and tiles would cost between $40 to $100 per square foot, while hardwood flooring would be about $6 to $8 per square foot. Installing a new roof would cost about $7,300, but more for certain options like slate roofing. Other additions such as an indoor pool could cost about $28,000 to install; a deck or porch could cost $20,000; and energy-efficient fixtures such as solar panels would cost between $10,000 to $15,000.
As for the raw materials, prices are still unstable post-pandemic, leaving contractors a bit uncertain as to how to provide set prices for clients. Initially, the price of lumber tripled, adding over $35,000 to the price of homes on average. But by Q2 of 2021, prices began to drop back down, though still remaining above pre-pandemic levels. This has made it difficult for builders to predict not just project costs but timelines as well. Supply issues for appliances, paint, and copper add to this problem after many manufacturing facilities closed over the pandemic.
Soft costs come from the other services not related to the actual construction of the structure of the home. Some of the main factors are land development, building permits, and architecture and design. These important soft costs are also part of the reason why Texas is the eighth-most expensive state to build a home in in America.
Cost of the Land
Houston registered the third highest population growth in America between the years 2018 and 2019. By 2020, the population grew by 1.5% and is expected to reach 1.2 million new residents by 2029.
According to a custom home building site, large tracts of available land near Houston and other major metro areas like San Antonio and Dallas Fort-Worth have been more difficult to find. In recent years, the cost and value of land north of Houston have been steadily increasing. By 2019, the average cost of land in the Houston area was around $4,300 per acre with a median of $3,142 per acre.
Lot prices vary based on location. Prices in West University are around $110+ per square foot, while Houston Heights are set a little lower at $95 per square foot. On average, lots in Houston can cost between $200,000 and $500,000. The price will also change based on zoning. If a lot is located in a flood zone, it will typically cost less but the home construction costs may be higher. Flood mitigation features like adequate drainage can add approximately 20% to construction costs.
It should also be noted that the effects of Hurricane Harvey have resulted in additional regulations for homes being built within a floodplain. Some of these regulations require homes to be raised two feet above the highest flood levels.
Most lots inside the loop in Houston are generally 5,000 to 7,500 square feet and might already have an existing structure. Some lots also have fencing and trees that homeowners may want to remove in the process of new home construction. These lots can usually be found in neighborhoods that have access to city water, electricity, gas, and sewers. Other lots may not have updated sewers, which will incur developmental costs on the homeowner.
Permits and Other Fees
A report from the National Association of Home Builders (NAHB) states that there were 48,208 new home construction permits issued in 2020 for Houston. Demand is expected to increase due to population growth and out-of-state migration.
Permit fees for Houston depend on valuation and are more or less the same whether it is for remodeling or new construction. When building a home, estimates for permits cost between $1,200 to $2,000. More specifically, in Houston, the estimated price for a 2,600 square foot $450,000 custom home is $1,940. Prices still vary depending on the local regulations and can get more expensive if the custom home is built on a lot placed closer to urban centers, and become cheaper when set in a more rural area.
The valuation table for the Houston permitting fees can be found in figure 2 below.
Architecture and Design Fees
On average, professional architectural services have costs ranging from $15,000 to $40,000. Typically, these services make up 10% to 14% of the overall cost. This also includes site evaluation and pre-design planning, schematics, design development, preparations for detailed work drawings and construction specifications, and coordination with structural engineers. Depending on the city, permits for building concrete sidewalks and right-of-ways, sign permits, and development permits may also be needed. In Texas, permits for electrical systems, mechanical permits, and plumbing permits may be needed as well.
On the labor side of architecture and design, a builder can bill about 10% of overall costs for the work. Custom-built homes are more complex than modular homes, so the pricing for that will usually be higher since it calls for specific skill sets. It is recommended that homeowners add a 10% contingency amount into the budget for new home construction projects. This will account for any additional features that may be added down the line, or cover costs from unforeseen events.
How do the custom home building costs in Houston compare to the nearby cities?
Based on data gathered from online contractor marketplace BuildZoom (BZ), over the last five years, most of the permits for new home construction in the cities and suburbs in the Greater Houston metropolitan area are valued within the same range as its anchor city.
In Pearland, detached single-family dwellings with three or four bedrooms and garages average at $215,260, going as low as $36,490 and as high as $385,000. After Hurricane Harvey tore through the region in 2017, there was also a spike in reroofing permits issued in the city the following year.
For Lake Jackson, the average cost for single-family dwellings is $264,176, starting at a low of $90,420 and going all the way up to $950,000.
The few permits that turn up for South Houston are mostly for three-story single-family residences with attached garages, ranging from $225,000 to $295,000.
In Rosenberg, single-family homes average at 2,800 square feet, with the smallest structures at 1,159 square feet and the largest at 4,470 square feet. The cost of these homes averages at $270,276, starting at $107,000 and going as high as $2,736,880.
The size of detached single-family homes in Dickinson is at about the same range, averaging at 2,819 square feet, starting at 1,623 square feet and going up to 4,770 square feet. However, the average cost is at $262,209, starting at $126,755 and going up to $725,000.
In Sugar Land, the average cost of a detached single-family dwelling is a little higher, at $380,466, with a low of $215,863 and a high of $750,000.
A little farther away, Alvin registered lower costs at an average of $161,373, with a low of $112,915 and a high of $203,645.
Major Custom Home Building Cost Trends Across the Web for Houston
In an interview with local newspaper Community Impact last June, Keith Luechtefeld, president of the Greater Houston Builders Association, shared that builders in the area are “cautiously feeling good” with a good pace of sales. “Pricing has risen at a rate [that] is more than what we would like, but some stability [will] start to return to the market at some point here too, … and we’ll see a little more normalcy.”
Luechtefeld says that although the spike in the price of lumber has been the most dramatic, other areas have been hit by an increase in costs too, such as plumbing, metal prices, and many others. Despite this, however, the steady stream of work has stretched firms to their limits. Luechtefeld comments, “We’re seeing some challenges, but it’s still an acceptable trade labor market.”
What Leading Custom Home Builders and Architects that Serve the Houston Area Say
Shawn Gottschalk, a member of the American Institute of Architects (AIA) and principal architect and partner at design-build firm studioMET architects, shares that construction costs have been “ever-changing” even before the pandemic. That being said, since his firm works primarily on custom single-family residential homes that are on the higher end of the market, the majority of their projects average between $350 and $450 per square foot. This covers total project cost, including all professional fees, consultant fees, and site development and landscaping cost, excluding the cost of the land or property. However, many factors impact the overall project cost, such as the size of the home and property, the construction package, and specific additions such as a pool, the window and door package, and so on. Consequently, each project requires an in-depth discussion with the client. “We always recommend clients to have a 10-20% contingency to account for changes in market conditions and flexibility in their design selections,” he says.
For today’s market, James M. Evans, AIA, president of Collaborative Designworks, estimates the cost to build more value-conscious homes to be at about $230 to $250 per square foot, with architectural fees at a corresponding 8-9% of the total construction cost. A mid-range custom home would be at about $250 to $300 per square foot, with architectural fees at 7-8% of the total construction cost. High-end homes would cost $300 to $450 per square foot, with architectural fees at 6-7% of construction costs. “We saw a brief spike in material/construction costs in Q1-Q2 of 2021 which has come back down partially, but still prices are trending higher than 2020,” he adds. Evans expects costs will level off for the next six to eight months. Whether prices will go higher or lower from there will depend on the long-term impact of the COVID-19 pandemic.
Patrick Martin, president of luxury custom home builder Marwood Construction, added his own insight. He shared that hard construction costs for custom Houston homes without the actual lot cost and improvements can be classified into different categories. The first category is the affordable minimalist home. It has a rectangular envelope, a square foot range of 2,000 to 2,800, nine-foot ceilings, a moderate pitch roof, cement fiber siding, and an attached garage. This category is priced at around $150 per square foot.
Marwood Construction’s second category is the mid-range custom traditional home, which is a two-story home with 10-foot ceilings, steep roof pitches, brick/stucco veneer, a square foot range of 2,800 to 4,000, multiple HVAC zones, moderate finishes, wood floors, job site built cabinets, and covered porches. This is priced at around $250 per square foot.
Thirdly, Marwood Construction’s next category is the high-end custom home ranging between 3,600 to 6,000 square feet. This features 12 to 20-foot ceilings, a brick/stucco/stone veneer, a cut-up roof with composite material, 400 amp electrical service, a detached garage, custom cabinets, stone and wood floors, and an upgraded millwork package. The pricing range starts at $400 per square foot.
The firm’s final category is the ultra-luxury custom home. These homes are typically within the 6,000 to 12,000 square foot range with tile/slate roof materials, stone veneer cladding, unconventional designs, steel windows and exterior doors, top of the line cabinets, pattern floors, paneled walls and ceilings, state of the art electronic controls, and exotic millwork lumbers. Marwood Construction prices this at around $600 per square foot.
As for a forecast for the area in years to come, Martin of Marwood Construction notes that the nation has been in an under-supply status since the financial market crisis of 2008, prompting the Federal Reserve to lower interest rates to accelerate the economy, and consequently exaggerating the demand for new housing. “The Houston and Dallas housing market has led the nation in housing starts the past decade with approximately 40k starts each year. There is little evidence that this trend will change anytime soon.” Martin continues, “As for the housing starts trend in the next 5 to 10 years, provided that an unwelcome global disaster is avoided… with the Fed expected to gradually raise interest rates in the coming years, the housing market will have an opportunity to continue to grow, with less pressure from the demand side of the equation,” he says.
On Point Custom Homes’ CEO, Earl Correll has also shared some insight on Houston’s construction market. While there is a general range for pricing, the cost is completely dependent on the homeowner’s priorities and the amenities and building science techniques used. The firm specializes in luxury homes, so its more value-conscious clients lean closer to the $200 per square foot pricing. This type of custom home has mid-level finishes and a lower-level appliance package. Higher-end clients are more likely to go with $300 per square foot, which gives higher-end finishes, luxury brand appliances, and better building science techniques.
One of the biggest trends On Point Custom Homes noted is the scarcity of commodities, materials, and labor. Things like paints, trims, appliances, air conditioning units, and roofing are difficult to secure, even when ordering early. This is also exacerbated by the higher demand brought by the current market’s increased interest in building. Correll said, “These overall shortages have resulted in higher costs across the board. Plus, we have a lack of incoming tradesmen which is creating a higher labor cost as well.”
Correll foresees finding different ways to use new products to accommodate the material shortage. One of the examples he gave is the use of concrete for home flooring or countertops due to the higher pricing point of lumber. He also expects more automated construction to make up for the smaller pool of tradesmen in the industry.
On Point Custom Homes advises future home builders to be proactive in material selections. The firm suggests having several plans in case something changes or cannot be done. Homebuilders are also encouraged to be aware of what products and materials are being used to ensure that quality is not being compromised while keeping the project on schedule.
The Future of Houston Residential Construction Industry in Houston
Despite the effects the COVID-19 pandemic had on different sectors of the economy, Houston’s new construction industry was able to stay afloat. The number of permits for new home construction issued in 2020 rose by 21% compared to the previous year. These permits were for single-family homes, which reflects a high demand. By the end of 2021’s second quarter, 18,024 new homes were under construction across Houston. This is recorded as the highest number in the past four decades.
Construction costs have increased by 5.4% and have been consistently rising for the past five years. While the industry is currently still able to meet the high demand for new home construction, a slowdown is expected due to supply issues, increased costs, and low employment rates. Lumber prices, in particular, are proving to be an obstacle to construction firms. Despite that, Houston is doing better compared to nearby cities.
Tiny Homes Becoming Popular around Houston
Although it has been around for a while, the tiny home movement has gained popularity during the pandemic, especially in cities around Houston. Whether it be for a change of scenery due to nation-wide quarantining, extra income renting it as an Airbnb, or a place for medical professionals or others to isolate away from the family, there is high demand for these tiny, less-than-400-square-feet homes. The Majestic Hills Tiny Home Community in Willis opened in early 2020 and now has about 30 residents. Aside from the easy-to-maintain 399 square foot homes, residents also get to enjoy a swimming pool and hot tub, a fitness room, a dog park, a community garden, and a community center on the property. These homes are comparable to an RV for their affordability, efficiency, eco-friendliness, and minimalism, with a median home price between $30,000 to $60,000.