Direct Construction Costs

What Affects House Construction Costs?

In creating a plan and pro forma for a new project, one of the key assumptions is the vertical construction costs of a home.  It is very common that our industry refers to these costs on a “per square foot” basis, which can sometimes be misleading depending on a variety of factors.

One of the first factors is primarily the size of the home.  On the per-square-foot basis, the smaller home is generally higher because the smaller home has all of the more expensive elements such as the kitchen, bathrooms, furnaces, water heaters, and other core features.  The larger home will have the same core elements but probably the cheaper space of lumber and drywall.  As example, an 1800-sf home might be $85 per square foot versus $75 for a 2200-sf home.  The larger home costs more in total dollars, but the square foot metric is reversed.

Another cost element is the design intricacies of a house.  A squarer, boxier design will be cheaper for the foundation, framing, and many other contractors.  If a house has more twists and turns, these trades usually allow for more labor to complete the work.  Another example is the number of windows required, which can vary widely depending on the design complexity.  If you see a house that looks architecturally significant, it is a good chance that the structure costs are higher.

The level of features, or “spec level”, tends to be the other key element in the overall costs.  Interior wise, the type of cabinets, appliances, sinks, faucets, countertops, tub enclosures, and many more items can add or save costs.  On the exterior, such items as shutters, siding, roof tiles, wrought iron, and window trim can have a big impact.  Homebuilders who are very market driven will understand what costs are essential or not to attract their homebuyers.

If you have any comments or questions, we welcome you to share with us below.

John Kaye has over 30 years experience within the land development and homebuilding industries, having held senior management positions with The Irvine Company, Koll Real Estate Group, and Brookfield Homes. As a developer, John has overseen the land acquisition, entitlements, and development of master planned communities, residential tracts, urban infill sites, and land assemblages. His experience and skill sets include land acquisition, land brokerage, project management, market analysis, finance, and strategic planning.

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