Every quarter we update our horizontal cost database across Southern California. Six counties, hundreds of line items, real project data. And what the numbers are showing right now is a market that has repriced significantly from where it was in 2023 and 2024.
This isn't about inflation as an abstraction. It's about specific line items that have moved in ways that matter for underwriting — and that most pro formas we review are still getting wrong.
Where the Numbers Have Moved
Grading costs have held relatively stable in most inland markets, but coastal and hillside sites are a different story. Haul-off rates, imported fill, and compaction requirements on constrained sites have added 15 to 25 percent to earthwork budgets compared to 2022 baselines.
Dry utilities — electric, gas, telecom — are the line item catching the most developers off guard right now. Utility company lead times have extended in most Southern California jurisdictions, and the cost to extend or relocate infrastructure has increased sharply. A transformer upgrade that penciled at $180,000 two years ago is landing closer to $260,000 today on many projects we've estimated.
Wet utilities have also moved. Sewer capacity constraints in coastal Orange County and parts of Los Angeles have triggered off-site main upsizing requirements on projects where the existing infrastructure wasn't budgeted to absorb additional flow. That's a cost that doesn't show up until the utility will-serve letter comes back — which is often after the land is already in escrow.
What This Means for Underwriting
The developers who are getting hurt right now are the ones using stale unit costs. A cost estimate from 2023 — even a good one — is not a reliable basis for a 2026 acquisition. The gap between what those numbers say and what a contractor will actually bid has widened enough to move deals from marginal to underwater.
The other underwriting problem we see consistently is contingency. Most pro formas are carrying 10 percent on horizontal costs as a standard assumption. On a straightforward infill site in a well-documented jurisdiction, that might be enough. On a coastal site with utility constraints, an uncertain entitlement path, or a tight construction window — it isn't. We recommend 15 to 20 percent on most coastal Southern California projects right now, and higher on anything with significant off-site scope.
Escalation factors matter too. A project that breaks ground in 12 months will face different labor and material costs than one that breaks ground in 24. Building escalation into the model explicitly — rather than hoping costs stay flat — is the difference between a budget that survives the project and one that doesn't.
The Right Answer Is Project-Specific
General cost benchmarks are useful for orientation. They are not useful for underwriting. The difference between a $45,000 per-lot horizontal cost and a $90,000 per-lot horizontal cost on what looks like a similar site can come down to a single utility constraint, a grading condition that isn't visible on the topo, or a fee schedule that changed in the last budget cycle.
What we build for our clients is a project-specific estimate — line by line, based on current contractor intelligence and real comparable projects. Not a template. Not a benchmark applied to acreage. An actual number built from the ground up, with the specific conditions of the specific site factored in.
If you're underwriting a Southern California land acquisition right now and working from costs that are more than 18 months old, it's worth a conversation before you close.