"The True Cost of Construction"
When we started Simplehome.com one of our goals was to bring good practical designs to people that they could afford to build. Yet we have learned that that isn’t enough to create the kind of change we think is needed in the residential construction markets. “What does it cost to build?” is often the next question we hear. We have also learned that many of our customers want to build their houses by themselves, without the aid of a general contractor. While this is certainly possible and often done, it can be tricky, and delays in schedules or the risk of working with unfamiliar subcontractors can eat away at the money saved by being your own general contractor.
What are the options then for reducing the cost of your new home?
The first thing to understand is a house, or any kind of building is not a one time expense. No one considers the purchase of a new car without first understanding what the operating costs will be; what kind of gas mileage will it get, how much will it cost to insure, and the typical costs for repairs and maintenance. Considering a house in the same way will save tens of thousands of dollars over the life of the home, yet the focus always seems to be on reducing the initial cost of construction, as if that is all the money ever needed. We see this with our commercial clients over and over where low cost high maintenance materials or cheaper less efficient equipment and building systems will be chosen in order to “keep the costs down”. Often referred to as “value engineering”, it usually just moves dollars from the construction budget to the maintenance budget.
Let’s look at what you might be required to spend over the course of a typical project, and how you might be able to save money without reducing the quality of construction. The following categories could be considered controllable budget line items but rarely are. We think that “money is left on the table” in most of these areas; money that could be put back into the construction budget to be spent on quality.
Site Selection:
Ever wonder how your electricity arrives to your house, or where the water comes from when you turn on your faucet? Utilities like these are provided to the building site on demand and are paid for by the developer; in this case, you. Choosing a site with Utilities installed as in a platted development, or least close by can save thousands. Also consider spending a few hundred dollars to have a soils analysis performed before selecting the site. Loose or unstable soil can add money in engineering fees and construction costs. And though we don’t recommend avoiding hillside sites, it should be understood that a sloped site generally increases construction costs, and should be weighed against the advantages of building there on them such as; access to views, light and air. The long term value of these three alone may justify the expense of building on the slope. City or County, rural or urban, Site Development charges will vary wildly depending on where you choose to build. We’ll go into that in the next section on Permits and Fees.
Permits and Fees:
You’ve already saved a few thousand dollars in architectural fees by buying a Simplehome Design Plan Set, but what other fees might you have to pay? Preparing the construction documents for permit and construction can range from a few hundred to several thousand dollars. High seismic or high wind zones require specific construction methods to resist the large forces nature places on buildings in these areas. The associated fees for engineering and approval can add from $2500 to $5000 or more to the cost of preparing permit review drawings. By building a simple house that conforms to the prescriptive engineering requirements of the building code you can put that money into quality materials and construction that will pay back for years to come.
Where we live, crossing the county line automatically reduces the cost of a new home by $14,500.00. Site development charges are assessed by the local authority to cover the added burden of new construction on existing infrastructure like roads, sewers, utilities etc. Find out what these costs are before you choose that “can’t loose” property. The difference between the city and county could pay for cork flooring in the family room, or even a radiant slab.
Field Labor:
Field labor is one of the highest costs on the project. It is also one of the least predictable, yet it affects the amount of money you spend in two ways. Obviously the longer construction takes, the more it will cost, but what is it costing you to carry that high interest construction loan for another month - four or five percent on your balance? Consider listing a reasonable amount of money to be paid by the contractor for every day past the schedule listed in the contract. You’re not trying to rip anyone off, just cover the costs of delays. This can be tied to finance costs, rent or mortgage payments on existing housing that you would not be paying if you were able to move in. Consider increases in costs due to missing important fee schedules such as the sewer connection costs, or building inspection costs. These fees go up on a regular basis, so find out when they are due to change, and include that in your construction plan.
Better yet, consider buying a pre-engineered shell package from a post and beam or panelized housing company. The time saved in construction often offsets any added costs, and the construction quality will pay back forever. One system we like is the Structural Insulated Panels being offered by companies like R-Control and Fischer Sips. The precut panels will be fabricated and engineered by the factory, and delivered to the site on time. Many companies will even provide “curb side financing” which means you don’t pay the balance until they get there. These systems go up fast, saving precious filed labor dollars. This can also save money in finance costs over the conventional system of paying for materials as the contractor acquires them. You might be financing materials and paying to store them until they are used without knowing it. Financing is another money pit, let’s look at that next.
Financing:
Have you ever looked at the note for your existing mortgage? If you haven’t; go get it, and sit down. The miracle of compounding interest is never brighter than it is on this document. If you can save $10,000 by making some smart choices on the initial costs of your project, it is $10,000 less you have to finance over 30 years. Do the math; it’s a ton of money. The lesson here is; don’t finance now what you don’t need now. If you think you might need four bedrooms in five years, but two will due for now, consider designing the house to take an addition five years down the road. The savings over five years created by financing less will be a good start on the cost of the new addition. It’s likely that the new construction will be paid for by the equity in your house as well, meaning you can use a low interest home equity loan rather than a higher interest construction loan to pay for it. Also consider that you haven’t heated or cooled that space for five years either which brings us to the next largest cost of home ownership; Energy consumption.
Energy Consumption:
Every one knows that saving energy is a good thing to do for the planet, but it also has direct and indirect benefits to your wallet. Consider the SIP house we mentioned above; it requires about 50% less energy to heat and cool than a conventional wood stud house. If as we mentioned above, you built a two bedroom sip house that you lived in for five years and you saved about $30.00 per month on your utility bill, you would have well over $15,000 of savings to put towards that new addition. The math is simple, but very powerful. Now consider a house design to use very little energy, or even generate some of its own. The first cost of the heating system can be reduced, and the ongoing operating costs will be minimal. Making good choices early in design and site selection will pay you back at an increasing rate the longer you live in the home. As energy costs rise over time, your savings increase as well, which can pay for the quality materials and construction techniques you can now afford.
Materials and Methods:
Remember the three little pigs or the man who built his house upon the rock? These stories contain sound advice: If you’re going to be cheap in the beginning, you’re going to pay for it later. Traditional methods of dealing with the effects of nature on a building are hard to improve upon. Appropriate roof overhangs not only protect the walls and window from rain and snow, but sized properly they can let in sun when you need it in the winter and keep it out in the summer. The added protection of the finish will also prolong the life of the materials themselves. Proper flashings and sidings of durable materials like zinc or copper will perform for a lifetime needing little or no care. Materials that allow a building to breathe and dry out like traditional stucco, wood shakes, and brick can add years to the life of a structure, and prevent the onset of mold and rot. These materials also have the added benefit of aging gracefully over time, weathering in a dignified manor. Although they may cost more initially, used in the right way they can add thousands of dollars to the value of your home. Quality always pays off in the long run.
Conclusion:
So as you consider building your new home remember to consider the whole life of the building. After all, it usually comes down to what you can afford on a monthly basis. Don’t assume costs for energy and maintenance, figure them out and add the saving to what you can pay for the mortgage. Take control over the money you finance, and plan for the future now, but build for it when the time comes. Good design, a little research, and smart choices up front will allow you to build a healthy and sustainable home that you and your family can live in for years to come.