Why Construction Prices Aren’t Coming Down
Since May of last year SIX of my projects have been canceled, had their scope of work dramatically reduced, or have been paused indefinitely. (I usually have 20-30 active projects at any one time so six projects represents a significant portion of my clients.)
These cancellations and project reductions are perspective changing experiences for my clients. Two of those six projects were DIYers; the client was saving money by doing their own demo. They had already put literal blood sweat and tears into these projects. To get your hopes up and then have it feel like it was a waste of time, money, and emotional bandwidth is extremely difficult.
For my business, this is a challenging time. People are anxious and I’m supposed to be the one reassuring them and guiding them. I’m supposed to be the one who warns them of these construction prices. But I honestly had NO IDEA. (I’ve since shifted my attitude and the way I prepare clients for construction costs so current clients need not worry.)
The prices that came back this summer were 20%-50% higher than anticipated. They surprised me and every contractor I know. We had all expected prices to decrease after COVID calmed down a bit. But of course, they haven’t. Why would they?
Why Prices Aren’t Coming Down
Materials aren’t going to come down in a significant way until demand drops. (Lumber prices are just one piece of the puzzle.) In my neck of the woods, demand shows no sign of dropping but I think it’s a different story in other areas of the US. Increased interest rates are having an effect but it’s going to be a slow change.
Some materials can’t come down. Their supply chains have been permanently altered due to COVID.
Labor rates aren’t going to decrease (unless we go into a deep recession/ depression), nor should they. We have a shortage of skilled trades in this country and it’s partly because they haven’t been getting paid enough.
All signs point to at least a few more years of these kinds of prices. We need to prepare ourselves. Reset our expectations. And I need to adjust how I speak to clients about construction cost, I’ll start with:
“This is going to cost more than you expect, by a lot.”
Here’s what you can do to avoid being blindsided by costs
A great way to get a ballpark number for your project is to come up with an approximate idea of how many square feet you’d like and multiply that by a reasonable per square foot cost.
You can usually get an idea for square footage by researching plans online.
In January 2024, I’m currently using $325-$450* per SF for high performance homes and $250-$350* for code built** homes. For ground up houses, this would include sitework and utilities but you can use similar numbers for a home addition/ remodel.
Example #1: 1800 SF ground up high performance home will likely be around $585k-$810k.
Example #2: 1800 SF ground up code built home will likely be around $450-$630k.
*These per SF numbers are very basic and should only be used at the very beginning of a project to assess feasibility. They are based on mid to high level interior and exterior finishes. The per SF cost generally decreases as the home gets bigger.
**A code built home is the least energy efficient home you can legally build.
What you’ll need to have ready for meetings with designers and contractors
Determine your ideal timeline for design and construction. Not being in a rush can save money.
Make a list of your priorities. Consider energy efficiency, durability, the environment, aesthetics, luxuries. Is this a legacy house or are you already considering resale?
Decide on an approximate budget. Figure out what you can afford for your mortgage. (Be sure to consider that high performance homes have very low utility costs.) You can even go so far as to talk to a bank about preapproval for a construction loan.
If you have all this info prepared, the industry pro should be able to tell you relatively quickly if you’re in the ballpark of realistic.
And finally on a personal note, it sucks to be the bearer of bad news so much lately. Most clients have become friends of a sort. I care about them and want to help them realize their dreams. Their projects have been on my mind for months, if not years. I dream about them and they percolate at the back of my brain. To have the projects die feels like a loss. So if you’re reading this now, clients of canceled projects, I’m sorry that this happened. I wish it wasn’t so.
If you want to read more, check out Construction Dive: Higher material prices here to stay