Factors that can affect home construction costs

By Erik J. Martin CTW Features

Runaway inflation has taken a toll in recent years on everything from groceries to consumer electronics to what you pay at the gas pump. And home construction expenses are no exception.

Consider that the average price tag for materials to construct a single-family residence skyrocketed 42% between 2018 and 2021, contributing thousands of dollars to the price of a new property, per a 2022 report by Bank of America. Remodeling costs have spiked significantly over the last year, too, causing 43% of homeowners polled in 2022 by Hippo Insurance to indicate that inflation has caused them to delay planned home improvement or maintenance projects.

Let’s face facts: Residential construction projects can quickly exceed your budget if you’re not careful, especially nowadays with the cost of building materials consistently going up, labor remaining in short supply, and supply chain challenges persisting. That’s why it’s crucial to look closely at different factors that can impact home construction/ renovation costs before pulling the trigger.

“Building a new home or a significant remodel is typically among the most expensive purchases made in a person’s lifetime,” says Jeremy Baker, co-owner of Letter Four, Inc., a Los Angeles-based design-build firm. “If not properly budgeted, a project like this can put a homeowner in deep debt without the ability to reasonably repay, resulting in stress and potential loss of the property.” By carefully calculating and considering construction expenses early in the project, you’ll have better peace of mind about what the project will likely cost and can make more informed decisions about how to allocate your finances.

“There are several factors that can dramatically affect construction costs, including the size and complexity of the project, the materials and finishes used, the location of the property, and the cost of labor,” points out Filippo Incorvaia, CEO/broker at FI Real Estate in Miami.

“Costs related to building new from scratch can also include land acquisition expenses, site preparation costs, and any necessary permits or fees.”

Remodeling price tags can be affected by the extent of the changes being made as well as any structural changes or updates to crucial systems like plumbing or electrical.

“The size, scope, and level of detail involved in the project can have a major impact, potentially increasing costs by 20% to 30%.

Materials and finishes chosen make a difference too, construction costs generally being higher in urban areas versus rural locations,” says Incorvaia. “And the cost of labor can vary depending on the region and availability of skilled workers, potentially increasing your costs by 10% to 20%.” with higher-end materials potentially increasing costs by up to 50%,” Incorvaia continues.

Baker notes that soft costs, such as architectural fees, structural and other consultant fees, permits, and other city fees, can quickly add up as well, contributing 20% to 30% of the total construction budget, depending on the size and complexity of your project.

Indeed, materials like lumber, concrete, roofing, and finishes will vary significantly based on factors like location, availability, and quantity. Collectively, they can often represent more than half of your total budget.

“The style of your home can further affect what you pay. For example, a modern style home, even though it appears simpler, is usually more expensive to build than a more traditional home design,” says Ryan Jantz, co-founder of Proteus Homes in San Diego.

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“Plus, there are unforeseen factors, which most typically come up with remodels, where issues that may not be visible when starting the design and engineering work are exposed during the early phases of construction,” cautions Baker. For these and other reasons, the experts recommend adding wiggle room into your budget by padding in an extra 10% to 20% beyond your expected price tag.

It’s tricky to predict with any certainty how much home construction/remodel costs may increase in 2023 because of inflation and other influences.

“However, it’s generally expected that these costs will continue to increase over time, which is why homeowners should be prepared for costs to rise by at least 5% every year and budget accordingly,” Baker recommends.