- Dax NollenbergerWhy Construction Costs Are So High in Santa Cruz
Santa Cruz is one of the hardest places in the country to build new housing. It is not just the price of land that makes it tough. Construction costs are among the highest in California, and those costs flow directly into the final price of homes. That means fewer projects get built, and when they do, the price tag is often out of reach for locals.
1. Local Builders in High Demand
In Santa Cruz, there are only so many contractors and crews available. With steady demand for remodels, ADUs, and larger housing projects, builders can pick and choose the jobs they want. That bidding environment drives up prices. Many homeowners already see this play out when three bids for a remodel come back tens of thousands apart, and the lowest bid is still more than expected. When capacity is thin, even smaller projects become more expensive than they would be in less competitive markets.
2. Impact Fees and Local Charges
Santa Cruz homeowners and developers face some of the highest impact fees in the country. Across California, the average fee for a single-family home is about $37,471, triple the national average of $13,627. Multifamily projects average $21,703 per unit, compared to $8,034 nationally. In some cases, Santa Cruz projects can see fees that push well past $50,000 per unit when you include water connections, schools, parks, and traffic mitigation. Those costs land squarely on the final buyer or renter.
3. Material Taxes and Tariffs
Construction materials are taxed immediately at purchase in California. That means when a contractor buys lumber, windows, or fixtures, they owe sales or use tax upfront, regardless of when the materials get used. Add federal tariffs of 25 percent or more on imports like steel, aluminum, and lumber, and the costs rise even higher before anything is installed on-site.
4. Permitting and Regulatory Delays
Santa Cruz is not as slow as San Francisco, but the process is still complex and costly. Getting approvals for even modest projects often requires multiple rounds of review, fees, and months of waiting. In San Francisco, planning approvals average 523 days, with another 605 days for building permits. That is more than three years before construction starts. While Santa Cruz is not quite that extreme, lengthy delays still add carrying costs for land and financing, which inflate final home prices.
5. Labor Costs and the Inflationary Cycle
Labor is one of the largest costs in any project. In Santa Cruz, the problem is magnified by the cost of living. Workers must be paid more just to afford to live anywhere near the job site. That creates an inflationary cycle: housing is expensive, so wages go up, and as wages go up, project costs rise further, which makes housing even more expensive. For publicly funded projects, prevailing wage rules push costs up another 13 to 20 percent. The result is a system that constantly reinforces its own high costs.
6. Rising Base Material Costs
Even outside California, construction materials have been increasing in price. Cement, metal, and glass have all risen 4 to 5 percent annually in recent years. In Santa Cruz, those national increases get layered on top of our local taxes, tariffs, labor costs, and regulatory delays.
How We Could Lower Costs Locally
- Streamline approvals: Santa Cruz could learn from PermitSF’s reforms and create guaranteed timelines for ADUs, duplexes, and infill projects.
- Restructure fees: Scale impact fees to project size, reduce them for small projects, and delay payment until occupancy rather than upfront.
- Ease material costs: Offer local tax relief on common materials and push for state-level credits on lumber, steel, and concrete.
- Support the workforce: Expand apprenticeship and training locally to grow the contractor base and ease competition for labor.
- Encourage flexible zoning: Allow more by-right construction of ADUs, duplexes, and triplexes so smaller-scale housing can move forward without long delays.
The Bottom Line
In Santa Cruz, construction costs are the silent killer of new housing. Between high fees, expensive materials, and an inflationary labor market, projects either stall or get priced so high that only a narrow group of buyers can compete. Unless we address the costs layered into the system, the dream of adding housing that local residents can actually afford will remain out of reach.
📩 dax@sereno.com | 📞 831-227-5847
