The largest city in New Mexico, with over 500,000 people within its bounds and close to a million in its metropolitan area, Albuquerque’s economy centers on science, medicine, technology, and most recently, entertainment. It also hosts the International Balloon Fiesta, which has attracted more than 800,000 visitors from around the world each October. This event is one of the most photographed events in the world.
The Cost of Building a Custom Home in Albuquerque
Albuquerque has also been long regarded as an affordable place to live in the southwest, with its cost of living 4% below the national average. However, Harvard University’s Joint Center for Housing Studies reports a 13.1% year-over-year growth in home prices in Albuquerque — a smaller increase than the 84 other large metro areas that have seen double-digit percentage price increases due to low interest rates and millennial buyers entering the market. However, despite the smaller increase, this price is still historically very high for the city. Those in the industry fear the impact this will have coupled with the already limited housing supply, especially in the face of the expected inward migration from companies like Amazon, Intel, and Netflix coming to the city and creating more jobs.
This has, however, kept home builders busy. For the residential construction industry, the pandemic brought a lot of on-site job restrictions, labor shortages, increased wages, and material shortages, disruptions, and price increases affecting the supply chain. Still, jobs have kept coming, even causing a boom. Residential properties continue to rise on the edges of the city, as the pandemic has also driven up demand. This demand has also caused cost increases for labor, lumber, and land.
Figure 1. Typical cost breakdown of a single-family home constructed using the conventional method, according to Home Builder Digest. Image Source: National Cost Guide.
So is it really still more affordable to build a home in Albuquerque? The U.S. market rate is at $207 per square foot. Home builders serving the area estimate the cost to build in Albuquerque between $175 to $275 per square foot. The cost to build a home varies from city to city due to factors that can be classified into two main categories: hard costs and soft costs. Hard costs are all the expenses related to the physical structure of the house. Soft costs are all the expenses that go beyond that, such as land costs, permit fees, and architecture and labor fees.
Hard Costs
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Hard costs cover everything from materials to the actual home construction. In Albuquerque, a value-based custom home would start around $175 per square foot. This is a home that would have builder-grade finishes, such as ceramic tile, laminate flooring, basic cabinets, level one granite or quartz, aluminum or builder-grade vinyl windows, value series appliances, and basic plumbing and electrical fixtures.
A mid-range home would start at around $225 per square foot. Mid-range finishes would include porcelain tile, engineered wood, mid-level cabinets with soft close, level two or three granite or quartz, and a moderate budget for plumbing and electrical fixtures. It would also have premium vinyl or fiberglass windows and higher-end appliances.
A high-end custom home would start at around $275 per square foot. This home would have all high-end custom finishes, fiberglass or wood windows, and professional appliances.
A home with energy efficiency features would range between $200 to $400 per square foot depending on selections for mechanical systems, windows, plumbing and lighting fixtures, cabinets, appliances, flooring, and more.
Over the pandemic, more homeowners in New Mexico have started prioritizing amenities such as outdoor living spaces and extra rooms. One of the biggest trends is the “flex space” — a room that can easily be converted into a home office, a home gym, or a hobby space. Outdoor entertainment areas and fully-functioning outdoor kitchens have also become popular. A lot of people are also remodeling their kitchens and bathrooms.
Soft Costs
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All the other expenses beyond the physical structure of the home fall under soft costs.
Cost of the Land
Online career resource Zippia reports that New Mexico is the second cheapest state after Wyoming to buy land (in a list excluding Alaska, Alabama, and Hawaii), with the average cost per acre at $1,931.
For Albuquerque, listings on Zillow, Redfin, and Landwatch range from an $8,000 five-acre unimproved lot 25 minutes away from the center of the city to a $7.5-million 762,300-square-foot lot within its highest growth and development area right off Highway 45 and Coors Boulevard. Landwatch also lists a $1,088,869 five-acre unimproved lot 23 minutes away from the city center in Volcano Heights, a community designed to create a better balance between residential rooftops and commercial activity on the West Side.
Industry leaders are observing more homeowners wanting bigger spaces since they spend more time at home, whether it’s within the house itself or a larger yard. They also expect the bulk of home construction to be at the edge of Albuquerque and in nearby Los Lunas, Rio Rancho, and Belen.
Property tax in New Mexico is computed as the assessed value of the property multiplied by the mill levy rate, divided by 1,000. The assessed value is computed as the full value of the property multiplied by ⅓ percent. The mill levy rate is based on the location of the property.
Permits and Other Fees
The City of Albuquerque Plan Review and Building Permit Fee Schedule indicates that the zoning fee is $25 for properties under 4,000 square feet and $45 for properties over 4,000 square feet. The hydrology fee is $50, which is used by the Albuquerque Bernalillo County Water Utility Authority (ABCWUA) to manage the city’s drinking water, which comes from a combination of Rio Grande water and a delicate aquifer.
The document also lists permit fees based on the project valuation. Plan check fees are 65% of the permit fee. The city allows for both online and paper application processes for these permits.
Architecture, design, and labor fees
Design fees in New Mexico typically range from 7 to 12% of the construction cost, while builders’ fees themselves in the Albuquerque metropolitan area range from 10 to 12% of the cost of construction, excluding land cost.
Industry leaders fear the labor shortage will lead to price increases that will impact economic growth for the longer term as the pandemic has further shrunken an already smaller construction workforce that makes it more expensive to build than in other western states, such as Texas.
Financing Options for Building a House in Albuquerque
Private lending network resource HardMoneyHome.com says there are 22 records for new construction lenders in Albuquerque. Note amounts average around $380,000, with rates for private loans averaging at 10.7% at a length of 19 months. The mean loan includes a 2.7 point origination fee, with lenders typically offering a 77% loan-to-value on hard money loans.
Well-networked custom home builders will also often be able to recommend lenders they have worked with in the past to new project owners. Typically, the initial deposit to be made is approximately 20 to 25% of the loan value, based on the appraisal of the property. Banks will typically charge an appraisal fee of around $500 as they hire an appraiser. In addition, Bank of Albuquerque provides daily mortgage rates running at an interest rate between 3 and 4%.
How do the custom home building costs in Albuquerque compare to other nearby cities?
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Permit data from the last five years gathered from online contractor marketplace BuildZoom (BZ) shows that the cost to build in nearby areas is lower than in the city of Albuquerque itself. For the city of Belen, which is 33 minutes away on the southern end of the metropolitan statistical area, the average job value is $134,569, starting at $54,686 for a 2,325-square-foot home going up to $292,012 for a 2,800-square-foot home. In state capital Santa Fe, the average job value is $195,827, starting as low as $42,896 for a 2,483-square-foot home and going as high as $561,386 for a 6,381-square-foot home. It is in the historic town of Los Alamos, about an hour and a half away from Albuquerque, that the cost to build a house comes closest. The average job value is $327,629. The lowest job value in the town is $100,000 for a 1,092-square foot home, while the highest job value is at $625,256.
What Leading Custom Home Builders and Architects that Serve the Albuquerque Area Say
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Jody Reinhardt of Albuquerque-based luxury custom home builder Connected Construction LLC shares that in New Mexico, building cannot begin until the construction loan is closed. “Typically, the lot should be bought or under contract before the house plans are started. The new house design will have parameters based on the lot such as zoning setbacks, orientation of the house on the lot, and views that may want to be captured.” He says the new home plans can take two to 12 months depending on the details and the decisiveness of the owners. It is only after the plans are complete that the construction loan process can begin. The bank will then require a cost breakdown from the builder based on the plans. Once the construction loan closes and the project starts, it would take six to 12 months to complete the build.
Reinhardt also shares that a two-story home typically costs less to build because it has a smaller concrete footprint and less roof. Reinhardt says, “if the garage and covered porches are equivalent to the heated square footage then the price per square foot will increase.”
The Future of Albuquerque’s Residential Construction Industry
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Albuquerque continues to attract prospective homeowners with its reputation for inexpensive housing. But it appears it’s getting harder for the middle class to afford a house in the area.
Industry leaders have observed the volatility caused by supply chain disruptions, material costs, and labor shortages over the past year following the pandemic. The upside is that coordination among different practitioners has increased, with more owners recognizing the need to bring in contractors earlier in the planning process. They hope this path towards more design-build and design-assist projects, where the uncertainties of pricing and sourcing can be mitigated, is something they can build upon moving forward.
In light of the labor shortage, which has actually been an issue among subcontractors since 2008 and has only been exacerbated by the pandemic, practitioners also hope trade and construction jobs will be promoted more in New Mexico as rewarding and well-respected careers.
On the real estate side, 2022 has been expected to start with an all-time low number of homes as the housing market has been relatively tight for months due to low interest rates and high demand from first-time and step-up buyers. The number of listings dropped from 968 in 2020 to 849 as of November 2021, with sellers hesitant to put their homes on the market for fear of not being able to find a new one. Rising rents and fear of missing out on the seemingly optimal market conditions may have pushed more buyers into the market. Starter homes are now estimated to be at about $300,000.
Affordable Housing
Many in the city believe Albuquerque should develop a more comprehensive housing strategy that will include provisions for homeless programs, transitional living programs, low-income rental, market-rate rental, and homeownership programs. Zoning policies enabling greater density, such as allowing for more accessory dwelling units (ADUs) on properties and encouraging high-rise condominiums can also help. Even new developments at higher price points can make a difference, as a family moving into a condominium can put their single-family house on the market and create an opening for a step-up buyer, and then consequently a first-time homebuyer.
Currently, there are a total of 68 new affordable units supported by the city’s trust fund. Another 152 will be available in 2022. A 2020 analysis found the city to be 15,500 units short of meeting the needs of those with low incomes. A five-acre North Valley property will also be developed to include 60 affordable rental units and 23 homes – six of which will be designated as affordable housing.
Another housing development in Southwest Albuquerque has its first phase also slated for completion in February 2022. It will include 151 lots, with homes starting at just under $290,000.
ICF as More Affordable Material for Building Homes
Greater Albuquerque Habitat for Humanity is set to collaborate with the National Ready Mixed Concrete Association and local concrete companies to build homes for lower-income families on three pieces of land throughout the city. The first groundbreaking will be in January or February 2022, planned for 25 homes that will use the insulated concrete form (ICF) foundation system. Habitat workers fit together recyclable, non-combustible ICFs that are then stuffed with rebar and filled with cement. The same project is already ongoing in Santa Fe.
Commercial Development
Media giants such as Netflix, Facebook, and NBCUniversal moving into Albuquerque and New Mexico have helped boost the economy but have also made it harder for local homebuyers to acquire property. The Netflix campus alone provides 1,000 production jobs aside from the construction workforce, but the housing supply in Albuquerque is dwindling. The option for remote work is also prompting more professionals to seek out less expensive housing amidst the southwest landscape.
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