Tuesday, April 10, 2007

On Shrinking Lots, DIY homes and construction costs...

This past weekend we were spending time with a friend in Calgary. North East Calgary to be specific. He bought his little house at the 'right time' last year, paying close to $250k for a detached 1000 sqft home. He looks happy in the home and after paying more than 25% down, he pays around $1100 in mortgage plus $500 in other expenses such as utilities and property taxes, . He spends close to an hour commuting to his downtown location (car plus c-train). My friend mentioned how he would have been unable to afford house in today's market when similar sized homes go for over $350k. I couldn't disagree with him as Mr Market is always right.
His house looked good but nothing great or spectacular. It just brought memories from eons ago(circa 2005) when a good sized (1800 sq ft) home would sell for close to the amount he paid in his locale. But what also struck me was the extremely small size of the house lot. It was no more than 18-20 feet wide. And if he got a garage built at the rear side, the yard would probably be no more than 7 or 8 feet long.

Why on this earth would lot sizes be so small, especially in a place like Calgary NE? I do not have any figures to back this up, but just based on what I saw there, it looked very odd. Bigger houses (2000 sq ft) in the same neighborhood had lots with open area only marginally bigger than my friend's lot.
What is going on? Is it pure and simple greed of the developers who are carving out smaller and smaller lots? Or is t the fear of the buyers who will buy anything so long as they get a chance to live in a SFH. I’m not sure how this will affect the resale prices of some of these homes when the next downturn comes.
The second thing that hit me was the really basic construction. How much does it really cost to build a similar home? I did some research and found that construction cost varies between $100 to $125. I'm not sure what the rate for construction would be in super hot Alberta economy, but as I mentioned earlier, labour rates have certainly not doubled. Anyone with an idea of the real cost of construction in Alberta?

So, with all these thoughts in my mind, I began to wonder:

Would it not make sense to buy a parcel of land away from the city and get the house built yourself? Or even more radical idea: why not build something yourself. After all, just a couple of generations ago, this would have been commonplace. Now some people will simply scoff at this idea and call it just impractical, but given the extent to which people extend themselves-financially and commute wise-just to get their dream SFH, why don't people think a bit differently? How about taking a sabbatical from work for 6 months and building something on your own. You'll pick up a new skill and get the perfect home for yourself! And even though I don't have numbers, I think it is very likely that instead of a tiny little lot in NE Calgary, you can buy something three or four times bigger than that for probably half the price within 30 minutes of city limits. In Edmonton, land on the outskirts of city will be even cheaper.
So instead of ending up with a tiny little house for $350k, you might end up with a huge lot (if not an acre) and a nicely built house for probably $200k or so and perhaps an additional half an hour in commute time.
Is it such a crazy idea? I'd certainly be willing to consider it before buying one of the little sub-starter homes for $350k.

What do you think?

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