I am sure this has been rehashed before, to death. But I gotta ask.
There are high cost areas to build, and there are low cost. We all know that. But let’s take off the table the stuff like seismic, hurricane-code, ridiculous snow load, blah, blah, blah.
Let’s try to compare builder hard costs in a couple different areas, assuming the following:
- Exact same plans, specifications, owner product selections.
- Fully improved lot with water, sewer, phone, CATV, all at curb 175 feet away.
- Same scheme for HVAC, excepting capacities for heating and cooling.
Now let’s say the comparison locales are a high-cost area of the NE US, and the other is a low cost area of the middle southeast US (non coastal). The lowest possible. That means labor at down to almost nothing. The cost of the land is not in the equation.
If we assign an index of 100 (builder hard costs) to the higher cost locale for this build out, where would you put the low index? 75? 65? Higher? Lower?
Please give some background to your answer.
Replies
In that FH Kitchens and Baths issue, there was a piece on pricing kitchen remodels. They talk about regional costs adjustments at the end of the artical. They refer the reader to a web site myremodelingproject.com,,,,,, I didn't check it out though. I have enough trouble figuring out what a job should cost in my own backyard!! I'm also always suprised what 20 miles in one direction or another can make.
H
I've "relocated" some projects from here in NJ to Atlanta and Charlotte, and I can tell you that the hard cost differences between those areas are in the 25-30% range. Given that there are more expensive areas than NJ, and areas in the rural south that are far less expensive than ATL and CLT, the swing could easily approach 50%.
Bob
Bob, by that are you saying that a house with $500K in hard costs to the builder, built in NJ, would only cost a builder $250K in, say, Turtletown, TN?
Other than labor, where in the world do you wring that kind of savings out of costs? Isn't gasoline, cement, plywood, sawn lumber, plumbingware, etc., all the same, within a small range, from coast to coast?
$500K in hard costs to the builder, built in NJ, would only cost a builder $250K in, say, Turtletown, TN? more like $125k
It's mainly in the labor, but the building materials costs are slightly lower as well. Think about it- if my lumberyard has to pay a driver $20/hour to deliver a load, but Bubba in Turtletown drives for $8/hour, there's a reduced cost. If my lumberyard occupies 10 acres worth $500,000/acre and pays $100k/year in propertytaxes, while Turtletown Lumber occupies 10 acres worth $5,000/acre and pays $5,000/year in property taxes, their CODB are vastly different.
Bob
Another way to think of the cost of commodity materials like OSB and 2x4s is this, Bob.
Let's say the wholesale cost is actually far different to retailers in Highcost, NJ, versus Lowcost, TN, for truckload quantities of OSB sheathing and framing 2x4s. Let's say the same large cost discrepancies exist for toilets and countertop laminate.
Now let's say you are a commodities broker in Virginia, and you notice these discrepancies. You start to contract with truckers to haul goods from Lowcost to Highcost, and begin to see some real gains on the margins. How long do you think your gold mine will run? I think it will be over in days, maybe hours.
I cannot see differences in costs, equal to the factors of 300 and 400 percent, like others here on this forum have suggested.
Let's look just at the direct site manhours required to build an "above average" 3 br, 2.5 ba new home. What would you say the figure is, from digging to punchout and cleanup? Would you say 5000 mh?
Let's say, just for now, that the figure is in fact 5000 mh. And let's say that the difference in hard cost to the builder, Lowcost to Highcost, amounts to $15 per manhour. That is difference, and it includes the direct wage, plus FICA, WC, etc.
Do the math, and you get $75K diff in labor hard cost difference, Lowcost to Highcost.
Even at that, it is still not significant enough to bring the total hard cost, all labor and materials, down from an index of 100 to, say, 25, as some have suggested.
For just one little slice of the pic, let's say the exterior window and door package, let's imagine what differences might there be. Say for example we are looking at Marvin as the specified manufacturer. Your dealer in Highcost quotes $29,750. Don't you think if you could buy them over in Lowcost at $25,500, that you would pay the $2250 in freight to bring them over to NJ and save some bucks? Of course you would. But you cannot, because the price in Lowcost isn't really low enough to make it work for you.
So what do you think it is? The factor, some figure for Lowcost, versus the 100 index for Highcost?
I built my house two years ago for $49,000, that includes the property and septic tank, concrete driveway. concrete was $30 a yard, the property 1/2 acre was $5000 the septic tank installed was $1100
Hi Gene;
I'm finally back on after moving to Oklahoma.
I think you have to also consider expectations. HO's in rural areas are not going to expect homes that their home which might be well above average for their local area should have same the high end fixtures & trim or even the same number of rooms as suburban ones would be expected to have. Sure that means we're not compairing costs for the same project. But in the rural areas we wouldn't build the same home for people of the same "social standing" as in metro or coastal areas.
As someone else pointed out all those higher costs in metro areas are cumulative. Higher labor rate.
And I think issues that drive up man hours such as lower skill level, greater driving times,etc.
Higher salaries to management & sales staff for suppliers.
Value of business location property.
Profit expectations for the supplier businesses.
Plus of course taxes & fees.
A teacher in suburban east coast at DW's tenure would earn 80-90k, in rural Iowa that would be 45k and those Iowa teachers would live as well as the suburban ones due to generally lower costs and lifestyle expectations.
Jim
If you have a problem, don't just talk do something to set it right.
Jim Andersen
Edited 11/19/2006 1:14 pm by jimcco
Edited 11/19/2006 5:31 pm by jimcco
My guess is that, as you say, labor costs vary widely, but I also think that materials will be least expensive in a hot building market in an area of somewhat lower cost of living. I'd think that although labor would be the least, building supply dealers in "turtle town Tenn" wouldn't have a high enough volume to be in a position to be giving great prices... Just my thought.
Also, Charllotte and Atlanta are among the most expensive areas in the mid south-east.
Means Residential Pricing Guide has indexed location cost factors. With average costs given a value of 1.00. Here is a sample of cost factors from Means:
NYC 1.36
LaX, WI .94
Clarksdale, MS .61
San Francisco 1.21
The range is from 36% above average to 39% below average, the price for the same size and features in a house in NYC would be 2.2x's that in Clarksdale, MS.
Edited to fix the math
Edited 11/18/2006 10:47 pm ET by basswood
In areas with higher labor and land prices, everything going into the project will be higher. Material prices definitely do vary by location, primarily because of shipping costs to the lumberyard and then in the cost of handling it and keeping the lights on.
When building out in the sticks our subs typically bid the project much higher than the drive time would suggest because the logistics are much more demanding. There isn't a quick run to the supply shop.
There is also a large difference in what contractors can charge based on reputation and that is often somewhat related to where the construction is happening. In-town developments were build with lower cost builders while the big summer homes we were building were much more profitiable, even if no fancier than the in-town home. Essentially, each niche has a fairly predictable profit margin.
Another reason the in-town guys were lower priced is that they can more easily get away with less prepared crews. Transportation, hand tools, larger equipment, and rental equipment are all a simple 5 minute drive away.
Beer was created so carpenters wouldn't rule the world.
Edited 11/19/2006 2:56 pm ET by IdahoDon
we got crews coming in from atlanta thats outbidding local
we got crews coming in from atlanta thats outbidding local
In Wyoming there were quite a few contractors that would get into projects in the Colorado ski towns because our labor rates were cheaper than those in CO.
Likewise, some contractors from South Dakota kept showing up, having underbid the local guys. I got the impression that the Wyoming jobs were taken mostly as fillers to keep the guys working, rather than as real money makers.
At least in the western states where some small towns litterally can have a complete shutdown in construction over the holidays and well in to January, the crews that want to work have to hit the road.
On the better crews around here a temp. shut down from lack of work would mean losing all the better carps. I always tell the younger carps, the first week they don't work at least 40 hours they should hook up with a different contractor with either better planning or better projects.
So, when things get slow, the contractors really shake the bushes to keep everyone working steady.
:-)
Beer was created so carpenters wouldn't rule the world.
Just an observation: You've basically eliminated all factors except labor, materials, and builder profit.
Another observation: When it comes to deciding what to actually build (or at least what ultimate price to place on the structure), one can assume that someone's not going to buy a $200K residential lot (not talking rural lots here) and put a $50K house on it, even if a $50K house would be feasible and would serve the average consumer's needs. The price of the home will be increased somehow to equal or exceed the land cost -- by building larger, building with more expensive products, or by simply raising the builder's margin. In extreme cases the builder might even pay his labor more.
I started this thread to see if I could learn how costs might land for a builder who will build a copy of a house I completed early this year. He will build from the same plans, and use the same specs.
I am corresponding with an owner who seeks this info, and he has yet to involve a builder in the discussion.
The owner's budget amounts to about 40 percent of what my own hard costs were for what was essentially a 2005 buildout. My location was far upstate NY, and his is rural central KY.
I figure that to make this work, the KY builder will need to have his hard costs come in at somewhere around one-third what mine were last year.
I think this owner is dreaming, but hey, what do I know?
In a past life, I was a corporate suit with ThermaTru, a large national residential entry door maker. I got to learn a little when in that biz, how building products are priced and distributed. TT sold to wholesale distributors (prehangers) who in turn sold to lumberyards. I can say with certainty that as recently as 5 years ago, the distributors were selling the most basic foamfilled steel door to lumberyards, pretty much coast to coast at the same price. Margins are slim, and a rural lumberyard in Bohunk Arkansas is getting about the same deal as one in high dollar Long Island NY.
I can't help but think one big reason for a Mississippi house to cost less than one in Maine, is the big difference in foundation type. I don't think construction methods are addressed well enough in the indeces you see in places like R.S.Means.