Friday, December 5, 2014

Are the materials of a house worth more separately than together?

About 30 seconds ago I had a realization that I feel like I need to get out of me. Perhaps I just need to write about it in order to fully process it, so thanks in advance for indulging me.

Everybody knows that building materials are expensive right now. They're so expensive that it's preventing people from starting new construction projects. This idea took on a different light today when talking with a couple members of the city council and the city manager.

One of their houses is worth probably 300,000 on the market, but if they were to rebuild it right now, with the current price of materials, it would cost them a million dollars.

I think what this means is that the raw materials a house is made of are worth more than the house put together. That means houses right now are the opposite of a value-add to the materials. This is just the opposite of the way we typically think of processed materials - the more processing, like with cheese, the more expensive it is. It adds value.

But this is just the opposite. The processing of the materials (in this case, building the house) has devalued the materials. How curious!

Of course, I'm not totally surprised, because in the an economy that's bumping up against its limits to growth, it makes sense that new raw resources would eventually out-price old, used resources.

It makes me wonder though, would it be economically viable to buy a house and then disassemble it and sell its parts at a profit? If the gap between the price of raw materials and processed materials widens, it certainly seems possible.

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