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What is The Maximum Price You Should Pay for a House?

maximum price you should pay for a house, what price for a house, calculate pride of a house

During a lecture from the course 'Household Finance', my professor talked about Real Estate en what maximum price is rational to pay for a house. I am curious what you think about his theory and if you agree. Let me know in the comments ;).

The Theory About House pricing

maximum price you should pay for a house, what price for a house, calculate pride of a house
Why are house prices increasing or decreasing?

My professor taught us that the price of a house can (long-term) never be higher than this formula: 'construction costs + inflation'. Why? If a house gets too expensive, someone will build the home themselves, because it will be cheaper.

Although, he also did mention that the house can be more expensive (long-term) than 'construction costs + inflation', if there is simply no place to build new homes. San Francisco is a good example: There is just no land to build new homes in the centrum. Because of this, houses in San Francisco are way more expensive than 'construction costs + inflation', but it can still be a rational price.

What Do You Think?

maximum price you should pay for a house, what price for a house, calculate pride of a house
What are your ideas about house pricing?

What do you think about this theory? I think it is important that besides construction costs and inflation it is very important to look at the land price. I think the professor also includes this in the construction costs, but it is still important to mention. This should not be forgotten.

For example, in my own hometown in The Netherlands, I looked around to buy a land to build a tiny house. Tiny houses are relatively cheap in comparison with other homes, so I thought it would be nice to have.

However, the prices of land around my hometown in South-Holland are mostly even more expensive than a small home. The average price of land is now $ 550,- per square meter, which means that a plot of 400 square meters is around $220,000. This means that for $220,000 you would only have the plot. This means that a tiny house is probably not cheaper than an existing small home at the moment. At least, in the Netherlands. How is that at your living place?


what should determine the price of a house, maximum price you should pay for a house?
Brainspins, Dutch for 'weird ideas from the brain' ;)

I am not sure whether 'Brainspins' is an English word, but in Dutch it means 'weird ideas from the brain' ;). Because of this theory, I am suddenly thinking: is the price of the house not most determined by the price of land? Isn't the increasing of the price of a house determined by the increase of the value of the land for the most part? Because if the price of the land is cheap, but the houses aren't, then it would be very interesting to buy a plot of land and build your own home on it.

Let me know what you think!

I am very curious about your thought on this and maybe you know more than me about this subject and you can teach me and others in the comments (or even a new blog :)). Let us know in the comments! :)

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