The below article was originally published on: http://blog.buildllc.com/2019/01/defining-a-construction-budget-the-2019-cheat-sheet/
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It’s been a decade since we launched our original Residential Construction Cost Cheat-Sheet and since then it continues to be one of the most searched and read posts in the history of the BUILD blog. We originally developed the cheat-sheet after seeing many shifting and shifty budget conversations. Subsequently, we decided to take the topic of construction costs head-on. Since the Cheat Sheet’s introduction, we’ve been having ever-more informed conversations about construction costs with current and potential clients. Escalating construction costs and protracted permitting timelines amongst most building departments in the Pacific Northwest have made the Cheat-Sheet more useful than ever. As an architecture firm with both feet on the ground, discussing the finances of design and construction couldn’t be more important. The goal was both simple and far-reaching. We wanted to create a straightforward baseline for discussing project costs (simple) and one that our industry could start using to help compare apples to apples (far-reaching).
We released The Residential Construction Cost Cheat-Sheet 2.0 in 2014 during a booming economy that has continued into the present. A roaring economy has its own challenges, though, and the sharp acceleration in construction costs has surprised many architects, builders, and homeowners in the Pacific Northwest.
Now in 2019, we are sensing a slowing market, significant economic challenges, and political turmoil. Further, we are deeply mired in an affordable housing crisis in cities like Seattle, along with permitting challenges that are nearly paralyzing. It’s a minefield of issues for the design and construction industry to navigate with each factor pushing and pulling regional construction costs.
We believe that housing will continue to be created and groups like BUILD LLC, with our 20 years of experience as a firm, can guide that process to continue to have happy clients. We have always maintained that this is best accomplished by being candid from the initial conversation all the way through the process to get the final result. With all that said, it’s timely to update our numbers and so we’re unveiling the 2019 Residential Construction Budget Cheat Sheet.
There’s also a PDF download here.
It’s worth breaking things down further to better understand why we’re seeing construction costs continuing to accelerate, far beyond just typical inflation. Here in the Pacific Northwest, several items have continued to intensify over the last 5 years, while new items have been added. These items, more than others, have fueled the construction cost acceleration.
BUILDING DEPARTMENT REGULATIONS
The requirements around drainage, impervious surface area, and stormwater management have become permitting projects in and of themselves in the Pacific Northwest. The design requirements often introduce additional pages to the drawing set, weeks of extra design work, additional consultants, and time-consuming reviews at the city/county. Civil engineers are now required to provide a design package on a single-family residence that would have been commensurate with a commercial project 5 years ago. The construction involves additional earthwork, costly site measures, and significant increases to site labor — all to support both temporary and permanent measures. All of this has left us with the feeling of literally pouring cash into the ground.
The necessity of geotechnical engineering is almost a guarantee on residential projects now. In the previous decade, a geotechnical engineer was required by the building department on a project only when extreme environmental factors were present (e.g., steep slope, potential slide area, etc). Lately, building departments have added a geotechnical report to their standard permit submittals frequently enough that the geotech has become part of most design teams. This work requires additional site visits, construction inspection/observations, additional coordination, and expensive reports with added cost implications in construction.
We have wonderful engineers we work with so this isn’t meant to disparage them in any way. We’re noting that they are now being pulled into all scales and types of project, and this can simply increase conditions and costs on those projects.
On the permitting side of the equation, far-reaching permit document requirements are adding significant time and energy to the permit process. Whereas the permit review process used to be an evaluation of the construction documents, the permit requirements are now tangential to the point of requiring a set of drawings, and a slew of supporting documentation, unique to the permit process alone (read: not used for construction, but simply hurdles in getting to construction). The additional time, energy, and costs of this are reflected (if not magnified) on site in both time and dollars.
Occasionally, a regulatory agency will misapply land use designations to a property. This could be in the form of a critical area like a steep slope or a potential landslide area, even if neither are present. Having these designations removed from a property requires consultants, reports, and lengthy permit reviews. If the building department doesn’t concur, the only path forward is to agree to their stipulations.
Beyond the land use and building code impacts, the secondary codes for MEP (Mechanical, Electrical, Plumbing, etc.) continue to add gratuitous provisions that make our heads (and wallets) hurt. We’ve discussed this previously, but new electrical provisions (for example) like adding ground fault protection throughout a home rather than to critical circuits adds 5% to an electrical budget. Once you tack on a series of code changes like this, with marginal benefit, your MEP costs can easily be 25% more than just a few years ago.
More so than in years past, we’re noticing higher expectations on behalf of clients. It’s becoming more difficult (and expensive) to attain a level of acceptable completeness. Some of this is just math…as costs increase, it seems like more should be gained with the expense.
We’ve found ourselves in a bit of a Catch-22 here. We very much understand and appreciate that our clients are making a substantial investment in their project. It’s typically the single largest personal investment in their lifetime. For many, it may also be the only time they build new or substantially remodel. Without a doubt, the level of execution in construction should be of very high quality given the investment. We also do not take for granted that our clients trust us to lead them on this journey, including the journey of setting expectations and delivering on them. We greatly appreciate that our clients haven’t been able to find something they could simply purchase to meet their needs and desires, so they are hiring us to make it for them. That is a clear indication that this is very important to them.
Yet, we find this situation needs to be balanced with a reasonable level of execution. Many hands (and overlapping feet and tool belts and equipment) go into making the final product. While we don’t accept even a whiff of substandard work from any of these participants or their part, not every single inch of a project will reach perfection. It certainly could, but that’s a whole different level of budget that we are not promoting. As the cheat sheet above notes, achieving perfection is a 40%+ construction budget addition. In our view, we are achieving “A” quality work. Attaining flawless perfection in every aspect of a project isn’t what we consider to be cost-effective or even sensible. There is an acceptable level that we can agree to and deliver (and we may have another whole blog post on this topic).
VENDORS & SUPPLIERS
A decade’s worth of industry demands has placed most vendors and suppliers into a constant state of being overwhelmed and overcommitted. Subsequently, their pricing continues to increase. And this has a chain reaction. Our vendor’s vendors have supply and bandwidth issues and this effects the whole chain.
Plus, as our region has become a denser metropolis, costs for items like trucking of soil and recycling material have exploded. Not only does our region suffer from detrimental traffic which increases trucking costs linearly, but we have to source and take material further from the City core as property has increased in value.
OTHER & UNFORESEEABLE
There are other factors beyond our control or influence that we are continuing to uncover, or simply get smacked across the head with. For example, due to the amount of infrastructure work in Seattle, every single thing related to concrete (mixing, trucking, reinforcing, pumping) continues to increase in cost at an unimaginable rate. We keep trying to peel the onion on items like this to reign in costs, yet it feels like the more we peel the larger the onion gets. We may use 60 yards of concrete on a project, while 60,000 yards go toward municipal work. We are left feeling fortunate we can get concrete at all.
As a resourceful, cost-effective architecture practice, we’re obviously not fans of unnecessary cost increases. We like to think of ourselves as the group that produces effective and accurate design budgets that complement the elegant and functional homes we endeavor to create. Along with that philosophy, we’ve generated some methods for savvy clients to navigate through and minimize the escalating construction costs.
• Reuse the foundation of an existing home
• Be reasonable with what is sustainable
• Being “green” doesn’t always make sense
• Start thinking of sustainability more as built-in utility rather than as a fashionable trend
• Limit the amount of reviewers/variables on a project
• Find a good team and trust them
• Be reasonable with what is achievable in the finished product and set clear expectations with the builder
(obvious defects get fixed, but ease up on total perfection or get your checkbook out)
Years ago we may have suggested that the ideas expressed above are simply our opinions and that there are different ways to go about designing, building, and financing a project. But with much more experience under our belts and more projects added to the portfolio, what may have been subjective information is moving more into the knowledge-based category. As with any advice, feel free to take it, leave it, or counter-offer.
Cheers from Team BUILD
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