Why Building A House Is So Expensive

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When we feel we’ve established a good foothold in life: securing a job and wanting the next step in growing the family, naturally the next milestone is buying a home. However, more often than not, we’re taken aback by how much it actually costs to build a home from scratch. Typically we’d end up resorting to setting that plan back a few years more to save up.

Building a house is expensive due to shortage of land and regular inflation of ever rising prices of raw materials and labor. It also requires several building professionals throughout the construction stage such as architects, engineers and builders. A lot of the price can also come from paperwork in permits and zoning ordinances, depending on your location.

Understanding the Building Process

With the growing population and increasing land shortage, naturally this makes the lot purchase in itself expensive. Should you buy a piece of land within a developer’s subdivision, you would have to pay their association dues. If you opt for a far off plot secluded in nature, it may be cheaper at first, but it’s another quest in itself to tap your house to public utilities and transporting material to the site.(1)

Know that throughout this process, if you choose to skimp somewhere, it’ll be harder and time consuming elsewhere.

Now having finally bought that lot, it will have to be surveyed and its boundaries verified by a geodetic engineer. The land will also be graded, drained and landscaped if too steep a terrain. Possibly you’d need to take a soil test for structural engineers to adequately decide on the foundation you need.

The construction industry taps at least 60 different industries, which all involve the sourcing and production of several raw materials. This could be in extracting lumber, cement, steel, bricks, etc. and can go on into more complicated materials that comprise several raw materials like concrete. Concrete is composed of cement, sand and water, but that’s just the material and excludes all the machinery and manpower needed to mix, form and monitor that concrete into a building. (2)

Image from Concrete cement production isometric flowchart with raw material extraction concrete plant transportation mixing equipment and construction product pr Stock Vector Image & Art – Alamy

As another example. window assemblies are also made up of several parts like the glass, maybe with some special coating or glazing for less heat gain. You can choose your framing from either PVC, wood, steel and will still need metal accessories and handles. Each material for your floor, wall, ceiling or roof is another supplier to source and haggle with. These materials also come from different trades therefore require sourcing different skill sets in labor. (2)

Image from World’s Most Complete Small Cabin Plans & Video Construction Course (baileylineroad.com)

Going on to the building’s systems; the plumbing pipework, ducts, cabinetry, fixtures and electrical wiring are another ballpark of suppliers. Each system now needing its own building expert in the field. A master plumber or sanitary engineer properly lays out the plumbing plan, electrical engineer for lighting and power, structural engineer for foundations, beam, columns. An architect needs to understand all concepts to bring these together, but these plans are all carefully produced by separate professionals to ensure a safe home, compliant to codes.

Unlike electric appliances and automobiles, mass production allows companies to create bulk orders of the same materials, produced via assembly line in a controlled factory. Their products are predictable, allowing them to order ahead of time, stock up and decrease prices. (2)

In house construction, raw materials and labor only increase as time passes. It’s also highly difficult for one builder to obtain the benefits of a large company that can stock on the same materials for mass production, or buy land in bulk. (2)

Not to burst any bubble of a dream, but also note the costs enumerated above are the basic inclusions of every home. Customized designs can add a premium (heftier depending on the complexity of design say for example curved glass). Architects would charge 5-15% of the project construction cost as their fee. Contractors and developers would charge you more for premium countertop or tile finishes that wow you in their showroom. Those fancy finishes often will not come with the basic units turned over to you.

For sure you’ll get your money’s worth hiring these professionals, as they’ll also assist you in the building permits, inspection and government regulations up ahead. (1)

Costs by the Law 

In putting up a building, there are a lot of documents and stages for building approval. Contractors can apply for the construction and building permit, the professionals will ensure they get approved by the officials but the client, homeowner (you) pay for the printing and processing fees.

Fees can also be dependent on location, so if you’re debating between a few locations it pays to look it up. (3)

Building laws and government regulations usually specify the minimum quality of materials to be used for safety standards. Afterwards, building inspectors and fire safety marshals will pay your site a visit to check compliance.

Again depending on where you build, some government fees may be heavier than others:

“Some fees are pretty straightforward. About $15,000 is for the school district, because more housing means more students. Another $7,400 pays for fire, police and emergency medical services…Then there’s the toilet, which costs about $5,000 for this house. Not the actual toilet, which runs about $130 at Home Depot. But the local water and sewer authority has fees for each fixture hooked up to the system.” (4)

Economics supply & demand?

As we’ve seen in the pandemic, the cost of homes suddenly plummeted when no one was buying in the market, meanwhile prices for lumber, copper and drywall for home improvement skyrocketed.

The cost of building materials continually increases due to population growth and inflation of materials. It can however also jack up due to disrupted supply, like when the pandemic halted operations, or a calamity puts a factory out of operation — leading to a surge in demand. (5)

Builders normally already take these price fluctuations into account when giving you a quotation. However one can never predict sudden spikes like the pandemic presented. This equally pressures builders to now give a price attractive enough to buyers without losing too much profit on their end. (6)

With the current uprise in building material and labor, is it a good time to buy and build a home? The safest solution is assessing your financial situation with the current market and seeing if you can afford it. Playing the waiting game doesn’t always assure prices will go down and might even get higher as you wait. (7)

Images from Will Housing Prices Go Down? Why It Costs So Much to Build A New House (bloomberg.com)

What is the Next Step? Other Solutions?

I don’t believe in giving up the dream that easily. As repeatedly reminded above, the price increase is inevitable. Believe it or not there are movements in the building industry and market to address these problems!

Scaling the square meters down as much as your lifestyle allows greatly helps, as this will resonate to the savings long term in maintenance. Architects and engineers have ingeniously created several space saving solutions and designs that help small spaces feel bigger.

Less square meters basically mean less property tax, less for architects and engineers to design and plan, less for contractors to source material and labor to build.

Although, if the dream really isn’t your version of  a tiny home, prefabricated construction and modular homes pose an alternative solution to conventional building and can save some costs overall. Just like the mass production of other industries, prefabricated housing is able to order some parts in bulk and also build in factory conditions. This can have a pricier upfront cost, but note several of the logistics and time delays have already been accounted for and no longer have to be worried or paid for by you.

 

References:

  1. Martin, A. (2021, October 30). Why building a house is so expensive. Investopedia. Retrieved March 2022, from https://www.investopedia.com/articles/personal-finance/050716/why-building-house-so-expensive.asp
  2. AHA. (n.d.). Why do houses cost so much?: AHA. Why Do Houses Cost So Much? | AHA. Retrieved March 2022, from https://www.historians.org/about-aha-and-membership/aha-history-and-archives/gi-roundtable-series/pamphlets/em-32-shall-i-build-a-house-after-the-war-(1944)/why-do-houses-cost-so-much
  3. Gerhardt, N. (2021, September 29). Why houses are so expensive to build. Family Handyman. Retrieved March 2022, from https://www.familyhandyman.com/article/why-houses-are-so-expensive-to-build/
  4. Scott, A. (2020, March 11). Why does it cost so much to build new houses? Marketplace. Retrieved March 2022, from https://www.marketplace.org/2020/03/11/high-costs-new-homes/
  5. Texas Living. (2021, September 19). Why is it so expensive to build a house right now?: TWG blog. The Wood Group of Fairway. Retrieved March 2022, from https://woodgroupmortgage.com/articles/expensive-build-house-now
  6. Nicholson, M., Merrill, D., & Sam, C. (2021, June 3). Building a Home in the U.S. Has Never Been More Expensive. Bloomberg.com. Retrieved March 2022, from https://www.bloomberg.com/graphics/2021-us-housing-construction-costs/
  7. Campisi, N. (2022, February 2). Construction costs are skyrocketing-should you build a house? Forbes. Retrieved March 2022, from https://www.forbes.com/advisor/mortgages/should-you-build-a-house/