The overextension is because the market cannot be that accurately estimated. Profits high one year new entrants rush in, overbuild, and profits crash until business failures adjust the rate of building. Then same cycle starts over again. This is similiar to the agricultural market cycle.
You don't really know the California housing market, and your theories, - as they relate to the Fair Tax, -- are mere speculation .
Lumber prices are not that stable and that is a huge part of total costs right there.
Not true. Lumber costs are not a "huge" part of CA total housing costs. -- Land & its development cost is the biggest factor.
I do not agree that there is that much flexibility in pricing especially when you must recall that the vast majority of construction is financed. This means the clock is ticking and time is money. Thus, the builder wants to get rid of the house as soon as possible even before completion if he can.
Again, you are speculating, -- often in the past, smaller CA builders would actually hold on to newly built houses for tax advantages. -- Lower capital gains taxes would pay the holding costs.
Hanging on to it too long can eat the entire profit if he is not careful.
Life is a gamble. Contractors gamble, & so-called economists opine cluelessly.
Housing prices in California are not the result of excessive builder profit but rather new restrictions on them by the local communities, ecological demands from the environazis, etc.
California builders do not make a higher rate of profit than builders in low price areas or you would see the market working to eliminate the excess.
Wrong.. You can't move the 'market' in land, and those who take the risks to develop it & build get the profits.
Here's a simplified but typical profit structure on a new million dollar 4000 sf CA house.
Developed lot, ready to build: 300K +
Materials placed on site: 200K
Labor & Subcontactors: 200K
Overhead 100K, - based on 700K construction loan & carrying costs.
Gross Profit if built & sold in one year: -- 200K
Thus, under the fair tax, a contractor would have to sell the project for $1,280,000 tax included..
A homeowner/builder could pay the 28% tax on the 800k of costs - [244K], assume all risks, and have the house built for [theoretically] $1,044,000..
Much the same savings a do it yourself builder can realize today. -- Big deal.
-- Your fantasy that the construction market would collapse because of a Fair Tax is just economic bushwa.
These threads are nothing but speculation some of which has a sound theoretic basis.
Land is typically about 30% of the cost of a house across the country California included.
And there is little doubt that this plan would have a devastating impact upon construction and everything else which is dependent upon financing. Your attempt to refute my comment totally ignores that point.
While your point about avoiding the full impact by building ones own home is valid it is not practical for the vast majority who cannot do that. And living in the house for a while would allow you to escape one of the most absurd features of the FT since you could sell it as used without the crushing sales tax. But most people would get creamed by this feature.
BTW it is the opinions of economists which are used by advocates to push this plan.