The price consumers pay for something has nothing to do with the cost of producing it. Not counting the cost of the land itself, an identical house built in the city costs the same in hours and materials as one in the country. Price is determined by one thing, and one thing only: how much other people are willing to pay for it (i.e. the market sets the prices).
The costs vs sale price are relevant to the builder in making the decision on whether to build and whether to sell, as they wouldn’t do it if they’re going to lose money.
As I get older, I’m increasingly skeptical of the idea that many markets are competitive. There’s so much overhead to so many businesses, plus heavy use of price discrimination — it doesn’t feel like a lot of the stuff I buy comes from a competitive market. (I’m sure less likely to notice the stuff that is.)
How is this true for generally appreciating assets like a house? It makes sense for commodities but until location and style don't matter I'm unconvinced there's a such thing as cost driving price in the housing market on any timeline.
The costs vs sale price are relevant to the builder in making the decision on whether to build and whether to sell, as they wouldn’t do it if they’re going to lose money.