The Cost of Building a Home Today
Chris d Craiker AIA/NCARB
In these days of unpredictable inflation, supply lines, labor suppliers and subcontractors disappearing, what’s the cost of constructing a new home today? Naturally, it varies from place to place, house to house, stick to stick. But there are some generalizations that might help all of us, including Architects and homeowners understand what to expect.
The National Association of Homebuilders, NAHB, has been tracking home construction costs for 50 years. As expected, the new home construction costs by a developer will be less than a custom home built. As a general rule, building a custom home that is tailored to your every need will be more expensive than buying a tract home from a builder. On average, building a custom home in California will cost $500 to $600 or more per square foot while building a tract home in this State will cost $300 to $350 per square foot not including land and development fees.
As a general rule, hard construction costs run 60% of the home price for a new home, with approximately 18% for finished lot cost. Now, don’t think that remaining 22% is profit. There are realtors, financing, and other costs so a builder/ developer generally reaps about 15%, which include perhaps 7% of the construction installation budget. Developers don’t make a ton of money off of the construction process
New custom home construction costs are different. This will require assembling a team of experts to design and build the home from start to finish. Construction costs will be higher and finding and purchasing a finished lot can be more, but not always. An individual buying a vacant lot, or buying and demolishing an existing structure will probably cost more than a developer who has taken raw undeveloped land, spent considerable time taking it through the approval process then grading and installing utilities and roads to service the lots. If someone wishes to build a custom home from scratch, anticipate 70% for construction costs, 25% for land costs and 5% for stomach and head pain relievers.
Here are some very general construction costs per California Region:
Los Angeles Metro Area ……………………..$400-$500/SF
San Diego/South State……………………….$500-$800/SF
San Francisco Bay Area………………………$500-$800/SF
San Jose South Bay Area……………………$300-$450/SF
North Bay Region …………………………….$500-$800/SF
This isn’t scientific: it changes by the day and location. My firm works all around the Bay Area and cost vary significantly from city to city, from county to county. Construction costs in Napa will be much higher than Sonoma or Fairfield.
Here are my unscientific general building costs as placeholders:
HVAC systems 7-12%
Building permits 2%
General contractor OH & profit 9-12%
Professional services, 2–4%
Naturally, this won’t add up to 100%. Finishes can be the most difficult costs to project. We typically try and design houses to basic palettes and of course, as people get closer to the finish, they always want more.
What’s the most painful cost increase? Currently it’s inflation. But it’s down from hovering at 9% to around 5%, depending on your references. Supply lines are getting better, although it still takes six weeks to get windows delivered.
Interestingly, home improvements with non-GC’s and no professional designer have grown 7% per year for the last four years, considered to be $567 billion. I applaud this factor. The more people can do by themselves without professional help is good, as long as the quality is there. That’s the tough part: a good carpenter or quality roofer can do the job, but it takes a good contractor to harness all the players together.
I always tell a homeowner wanting to get a simple job completed, at the least get a roofing building permit. It’s generally over the counter, and a limited permit is better than nothing when it comes to having a legal right for construction. Doing work without a permit is serious trouble.
Chris d Craiker AIA/NCARB recommends getting a building permit for a doghouse.