Economy of scale is interesting.
The smaller the house, the more expensive per square foot.
This graph shows the clear drop and leveling of price-per-foot as size increases, of Bellingham single family sales in 2020, of non-view, non-waterfront homes.
An entire thesis could be written, but it comes down to 3 basic elements:
1) The expensive parts like the land, kitchen, baths, scale way less as they relate to overall house size. Meaning, a 900 square foot house and a 2000 square foot house are going to each have one stove, fridge, dishwasher, sink, and 1.5 bathrooms. They’re both built on an 8,000 square foot lot. Those are essentially fixed costs regardless of the living room and bedroom counts, sizes, and layout. Those rooms are inexpensive compared to the plumbing rooms and land, so the larger those spaces, the lower the overall cost per foot of the entire house.
2) Builder’s fixed costs like insurance, tools, and office are the same whether they’re building large projects or tiny ones. These are costs the builder incurs regardless of project size or whether or not they even go to work on any given day. The larger the project and the more revenue that builder generates, the more those costs are thinned out. Builder’s burn time just traveling to and from the jobsite, setting up, cleaning up, buying materials. The larger the project and the longer they can stay on a job, the more efficient it all becomes.
3) Things are generally less expensive (materials) and more efficient (time/labor) at scale. Some tradespeople won’t even do small jobs, because the cost-per-revenue-generated is just too minimal.
The takeaway: Don’t fixate on your neighbor’s price-per-foot, unless you also consider their house size.