The Cost of Construction is Pricing Me Out of a House
More of a lamentation than a question, I suppose…
We’ve been in the design and permitting stage of our dream home for the last ~2 years. With delays caused by our architect (they were busy), the city (COVID-related backlogs) and ourselves (we were busy at stretches through this process), this process has dragged out way longer than we’d hoped.
I’m in Toronto, Canada and in that time since we first started talking to our builder, our cost of construction estimates have risen from C$550/sq. ft to C$825/sq. ft. This is before accounting for any contingency for time/cost overruns. And the vast vast majority of that spend is on the structure and envelope, not the interiors. And I get it that it’s more expensive to construct in a big city like Toronto than in some of the smaller towns across Canada and the US. But it’s at the point now where the cost of construction is way above the market value of purchasing a completed custom home. So if you build a custom home today, you’re essentially destroying rather than creating value.
After all this time and effort in planning and all this time spent dreaming about what this home would be like for our family, it feels like we have to walk away from this project.
I’m gutted.
Is this happening everywhere? For the builders on this board, are you seeing clients walk away from projects due to affordability? Is there any world where you can imagine costs coming down in 2024?
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My guess is you're looking at a custom built home (yours) compared to a home built by a production builder. Production builders tend to do two major things here: First, they build a LOT of homes, often entire developments, which gets them some savings from being able to buy very large quantities of materials, negotiate better prices, and use the same set of architectural plans for many individual homes (they "same house but turned 90 degrees" type of thing). Second. production builders in general tend to build absolute code minimum houses, and cut whatever corners they possibly can, to keep their costs down. This means a custom home is usually better built, and always more unique, but also more expensive compared to a home built by a production builder.
Materials costs for some things HAVE come down. I know that copper wire (a huge component of project costs for me, since I am primarily working on the electrical side of things) has come down ~30% or so in the past year. Lumber has come down some too from the post-pandemic highs. I don't think anything has come down to pre-pandemic price levels though, and I doubt most, if not all, products will ever go back to those old prices.
Mortgage rates are up a lot in both Canada and the US. I have family in Hamilton, so I'm more familiar with things over there than most in the US (I'm in the US), and a recent discussion about mortgage rates was suprisingly not pleasant! We'll probably see improvement there at some point, but it's likely years away. You're also trying to build in Toronto, which is one of the most expensive real estate markets in North America, and likely the world. My understanding is that many of the new projects there are bought as "investment properties" (I was told to look at some of the residential towers at night and note how few units are lit, despite the buildings being mostly sold out), and investors drive up prices. In the US, there is an expectation that real estate investors will probably have a declining influence over the next several years, but I'm not sure if that's the case in Canada.
My recommendation to you would be to try rebidding some of your project out, to see if you might be able to get some better price estimates. Your next option would be to look at land further out of the city, where you can probably find cheaper lots. Everything has been expensive though, even smaller towns outside of Hamilton have gone up in value a lot over the past several years, but that has cooled off this year. Closer areas such as Mississauga may also get you a bit of savings compared to Toronto, without being as far away. I'd have to have to commute every day though -- especially with all the road work going on in Toronto lately! My niece lives in the city near York University, and driving down there is horrible right now with all the construction and lane/exit/road closures.
Bill
Bill,
Will we see lower interest rates? Both the low recent Bank of Canada, and mortgage rates were anomalies if you look back.
Five year fixed mortgages:
1980s 13.60%
1990s. 9.10%
2000s 6.82%
2010s 5.10%
2020s 5.30%
People who took out variable mortgages at around 2% in the past few years were borrowing at rates that were never going to continue being that low. It shouldn't have come a surprise when payments went way up, however unpleasant that was for them.
The short term adjustable rates here are a good fit for flippers, but very risky for anyone else. More normal average rates over time are higher than the past decade or so of very low rates, but probably not as high as right now. The 70s and early 80s were an exception of exceedingly high rates, basically like financing your house on a credit card.
I think we may see some improvement in materials prices, at least that's what I've seen here, but in regards to your post #3, I agree labor is a huge problem. Every trade here is slammed, and everyone sees a huge catastrophe in the next 10 years or so due to a lot of people in the trades retiring, and not enough new people getting in. Labor rates and availability will likely be getting worse in the coming years, not better, and eventually that will probably have a bigger impact than materials costs.
In the commercial world, we are still seeing really long (year-ish) lead times on many things. It wasn't that long ago that corrugated floor pan was almost impossible to get, and it's pretty much impossible to build a steel framed commercial building without that stuff! A year or two ago, suppliers were saying things should be getting better, but now no one wants to make predictions, and a lot of availability issues are still there. We're probably in for at least a few more years of challenging times, but I do hope for improvement -- at least in terms of materials availability and pricing -- in the next few years.
Bill
It's impossible to predict where mortgage rates will go over the long term. But they are currently dropping, and it's expected we'll see a few more drops in the next 6 months.
People who took out variable rate mortgages at a time of historically low rates were very, very foolish. I feel stupid for only locking in for 4 years back in 2020, at 2.3%. Having that go to 2025 would have probably saved me quite a bit.
Its a bummer you may have to walk away from your plans. If new (custom) homes were the same cost as buying an existing home, no one would buy existing homes. Buying an existing home is almost always cheaper, and with less risk. You know what you are getting for the selling price because its already been built.
maxwell_mcgee,
It's certainly happening here on the West Coast. I don't see any end in sight to the constant increases in construction costs, because of two factors.
- Given current rates of construction, Canada is projected to be 3.5 million housing units short of what it needs by 2030.
- The lack of workers in the whole sector.
It's a bad state of affairs that causes a lot of suffering all round. I'm sorry you are affected by it. A couple of decades ago I built my house in a rural area where people came when they couldn't afford anywhere else. I could't afford to live here if I wanted to do the same thing now.
I built in 2017 and I am building now in 2023. It's a NIGHT AND DAY difference in terms of material cost, labor availability & cost, etc. It's gone up by a lot. Concrete was going for $135 a yard back in 2017 and now it's pushing $200 a yard. General labor costs were around $25 per hour back then and now are pushing $50-$100 for general labor. Skilled labor costs are double what is was in 2017.
If you can afford to buy an already built home, do that. Otherwise you are screwed. All the major billion dollar investment companies are buying up the real estate and turning them into rental units. They currently own 25% of all the residential home inventory. Believe what you want but there is a major effort for the younger generation to NOT own homes and rent for their entire lives. "You will own nothing and be happy" is where it is headed. Homes will be so expensive to buy/build, that renting will be the only option. If you didn't build/buy in the past few years, most likely you will never be able to build/buy in the near future.
There is a housing shortage coming due to the lack of skilled labor entering the workforce and the cost of housing. Large rental units is where it will probably go. I've seen a lot of 50+ unit apartment complexes being built. Rent is not cheap. $1,800 for a one bedroom apartment and two bedroom apartments are $2,100 in my area. A $300k fixed rate mortgage at 2.9% was around $1,300 a month just 1.5 years ago. The numbers don't lie. It was less expensive to take on a $300k mortgage two years ago than it is to rent now.
Are you able to downsize? I looked at houses in the area when we started down the path of building. Dollar for dollar, buying wins for sure. But it comes with a lot of extra sqft that we don't need. Or ovens so big they must have hired a gas pipe line crew out for the build. Lots of things we didn't need. We found we could fit more of what we wanted in a much smaller space. So building makes sense to me. We are planning to be the GC and get involved in a few details. Construct the RTA cabinets ourselves and things along those lines.
Locally I've seen two builds cancelled solely on account of construction costs. Both were scratched in '22 before mortgage rates went up. And FWIW neither was extravagant.
Those two cancellations haven't mage a dent in demand. Construction is still wide open around here. Never seen anything like it. I've been expecting the bubble to burst for the last couple years..........
Thanks all.
My points of comparison were custom home vs. custom home, in Toronto, most of the new homes within the city limits are tear-downs and full re-builds. Brand new production homes are only available in the suburbs and exurbs.
But my issue with buying a pre-built custom house is that I now have taught myself too much about building science to feel comfortable with code minimum construction practices.
Maybe in a province like BC where there are enough builders who are building to Step code 4 and 5 level, it'd be easier to buy a pre-built home. But in Ontario, there's a lot of frankly crappily-built multi-million houses with lots of interior design lipstick on the pig.
Sorry to hear about your struggles. Like you, we got serious two years ago about building our home on property we'd got a few years back. Just coming out of the worst of Covid, and knowing what had happened with lumber prices and construction costs, was nerve wracking. We began with a firm, conservative budget, and though we had to move beyond that, we've kept it manageable. And we weren't building in Toronto. Our architect has been agreeable, though we've had to fight at times to keep the build small. Also, we stopped discussions early on and had a serious talk with the architect, asking if there were more responsibilities that we could take on to limit his fees somewhat and keep other costs in check.
I also ended up being the general contractor. My wife and I were always going to do the interior--I'm a woodworker, and we're experienced home remodelers and tilers. But I was hoping to find a general contractor to handle the foundation, frame, roof, and even siding. But no one was willing to do it. As it turns out, this has been a blessing (and what's becoming a whole lot of work), since I now can ensure that high-end details are done correctly (no managing the manager). Obviously, not having to pay a GC is a bonus. So this is what has kept our costs manageable (and we won't have a mortgage)--things that are not open to very many people, which I well understand. Anyway, good luck. I hope you can still make it work.
My biggest advice for anyone without a truck load of money (and actually for those folks, too) is make it small but of the highest quality. The pgh guidelines are a good place to start. Who wants to live in a huge, mediocre house?
Similar story for us…
We saved up enough to purchased property and pay for infrastructure (well,septic, earthworks, milling trees) while working full time in a neighboring city.
Then when the time was right we quit, and spent our time fixing up a dilapidated manufactured home as temporary construction housing (or a future guest house) and moved in.
We tried working with an architect on the main house, but after too much time and money spent (and very little to show for it) we decided to design and produce plans ourselves for a modest PGH (thanks to SketchUp and Taunton Press! ). We worked with an engineer to stamp our drawings, and now we’re in permitting review. We plan to built it ourselves except for electric/plumbing/finish carpentry (what else can we do? There’s no one to hire, and we couldn’t afford to anyway).
This way we can stay within a small budget, and keep living costs low while we build. We’ve learned a ton of new skills, and it’s actually way more rewarding than my job was anyway. I’m actually saving more money than I would have made if I stayed at my job (opportunity costs aside). We’re also fortunate to have milled much of the wood we’ll need on site, so that protects us from at least some of the variability of material costs.
Sorry to hear about walking away from a dream home. I think these economic trends will lead to more DIY owner-built homes. But I get it’s not feasible for most.
AdamPNW,
A lot of baggage can get brought into the design of a house someone is probably only going to do once in their life, and sometimes that isn't good. I really dislike the terms Dream, or Forever Home. It raises unhealthy expectations, makes the whole process fraught, and sets things up for a let down. There are all sorts of things that aren't ideal about my own house - and I designed and built it. I don't have a Dream House, or Cat, or Truck. I think that's for the best.
You can probably save yourself some money by running the electrical wiring and just having your electrician make the connections on the end. Residential wiring is a lot of time spent drilling holes in studs and pulling in wire, both of which can be done by anyone pretty easily. The skill of the electrician is needed for the layout and the connections more than pulling wire, so if you find an electrician who'll work with you, have them lay things out, then you drill the holes and pull the wire, then have the electrician come back out for final connections. You'll probably cut down on billable electrician time by half, maybe more, this way.
Bill
good tip! thank you
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I am living the nightmare at the moment. After two years of permitting and design we are almost half way through our custom build. Our construction cost is going to be about 40-50% higher than our first estimate. It's a infill in south Oakville, so I am well aware of the Toronto costs.
And you are right, it's all of the structure, my foundation was 45% over and structural steel 100%. It's not like you can make the foundation thinner. However, I am finding that I can control the finishes more with work and making substitutions. My rule now is that all of the things that a Designer may tell you you need or TV shows or even GBA is that if I'm not going to care in a year or two if I have it, it doesn't get put in.
Fortunately my Builder is a fixed management fee structure so I have final say over subs, construction techniques and materials. I pay all the supply houses and subs directly. If I had gone a cost plus or fixed price route, I think it would be even worse now. We have also "trained" our Designer that we will say "No" quite often to pricey designs. Function first and make it look nice second. We don't need a hidden door pantry or a $200K staircase with another $100K in glass around it. And no to wrapping the shower in 3 slabs of quartz.
From your $825 sq/ft number, I'm guessing you are in an area where building is close to lot lines so you have extensive shoring, special scaffolding and equipment requirements, not to mention basic parking and material storage for trades.
I don't have any a crystal ball but I don't think construction will come down significantly, at least for what you want to build. Materials may come down a bit, but I think labour rates for good trades will be sticky. If you already own the lot, you may have to factor carrying costs too.
I actually think it's a good time as any to start in the next three months if you can. With the drop in new building permits and large developers putting projects on ice, there should be better availability of trades and probably lower material costs in about six months time. And hopefully there will be some interest rate relief in late 2024. Once the rates stabilize or go down, developers will start back up.
The only thing that is keeping me sane through this is I keep telling myself it's asset allocation. All of these extra costs are going into the "real estate" part of our portfolio.
Thanks -- and sorry to hear that your build costs have skyrocketed so much! This is a lousy situation but at least better than an alternative universe where I would have started the build and run out of money partway through. I hope you get through your build okay.
I want to tell myself the asset allocation story too, but the problem i'm having is it's going to cost me $1 to buy an asset that will be worth $0.80 when completed!
I don't think your asset will only be worth 80% when complete especially since this was to be your multi generational dream home. I don't know what path you chose to build your house but we purchased the lot, hired the architect and the builder on a fixed fee. Our end cost will be very close to what an investor would spend on a spec house for resale except we did not compromise on the lot and will not sacrifice build quality for eye candy.
Even if we decide it's too much after it's done and sell it, I think we will break even. Had we bought from a turn key custom builder who owned the lot and offered design build we would have paid about 25% more since the builder would have to recover his carrying costs for the lot and risks.
Good luck to you whatever you decide.
I've watched clients go through similar heartbreaks. The numbers I've seen in Portland, OR aren't quite as high as what you're describing, but they are high enough for the same types of project-killing budget increases to feel common. As an architect, I try really hard to get cost feedback as early as possible so that if a project is going to die, it dies when a client is only 15% into the design phase, rather than all the way at the end of the design phase. But like you said in your post, sometimes even getting cost feedback early isn't enough when the market is so volatile. It sucks. Watching this happen is my least favorite part of doing single-family homes, and is a primary reason my partner and I are talking a lot about shifting our business away from single-family homes towards doing more commercial work. Not that those projects don't suffer their share of economic challenges, but the fact that it's less personal than when it's someone's home changes the dynamic.
It's worth shopping around. It's worth taking a good hard look at your design and figuring out if there are ways to save money. But moving from $800/sf back down to $500/sf is a big move and may not be possible without sacrificing things you aren't willing to sacrifice.
Brendan, same here re: getting in front of realistic cost projections as early as possible. Saves everyone time, frustration, and money.
For what it's worth, in my office the rule of thumb is that you can save +/-10% by changing finishes, etc. But if you want to make significant cost reductions (ie, close to 40% getting from $800-ish to $500-ish a square foot) then you've got to be looking at building fewer square feet.
Complex roof lines and footprints are issues too. People like those complicated "peaky" roofs these days, which are a lot harder to build than more basic roofs. Footprints that deviate more and more from a basic rectangle also get more involved. "Cutting corners" quite literally saves money here when taken literally, but lowering the number of corners on the building perimeter.
If I was looking to save money, I'd keep to a rectangle for the house, with an attached garage on the side and in-line with the home (i.e. try to keep the shared dimension between the house and garage the same). This isn't as visually interesting architecturally, but it's a lot simpler and cheaper to build. I worked out a floorplan for a guest home this way a few years ago. If you're careful, you can make pretty good use of space. I think that guest house was ~1,000-1,200 sq ft or so if I remember correctly, two beds, full bath, open combined kitchen/great room along with a sort of combo storage/pantry/laundry room.
Bill
Matt Risinger just did a video on his Youtube channel in which he discussed reducing costs with a representative from Builders FirstSource.
https://www.youtube.com/watch?v=-KUghr_zzes&t=15s
One thing they mention to really cut down on costs is to reduce the complexity of the design. How many different roof planes do you have? How many bumpouts and corners? Can you reduce the number of operable windows (each room really needs only one). Can you put off finishing the basement?
I lot of people think that the best way to reduce costs is to go with laminate countertops now and get the granite later or to paint the interior themselves. These ideas, while good, only reduce the final cost a little bit. The real solution is to build less, build a simple shape with simple details and then finish the interior in stages.
> Can you reduce the number of operable windows (each room really needs only one).
Nice chunk of savings on any significant build.
> I lot of people think that the best way to reduce costs is to go with laminate countertops now and get the granite later
If your labor is "free", this can be an opportunity, as things like butcher block (which I'd do before laminate) save a lot of materials cost and are straightforward to install and finish (with a baseline level of skills).
> or to paint the interior themselves
I'm very much of two minds about this. I advocate hiring out painting because on larger jobs it parallelizes well and is on the lower end of the hourly wage spectrum (though by no means are good painters "cheap").
On the flip side, painting is also something I can force myself to do after dinner and after the kids are in bed, and just crank out a prep session, trim work, cut in, a coat, another coat, etc. over the course of a few days.
> The real solution is to build less, build a simple shape with simple details and then finish the interior in stages.
And this is the real bit of wisdom.
I don't have a lot of such details on my house, but the detailing on a bay window and a dormer probably landed at 5x of labor "in the field", on a per sq. ft. basis. It sounds ridiculous, but every corner adds up, particularly because these corners typically cause intersections in multiple planes. If the features weren't already part of my house, with severe implications to the interior to try removing them, I would never, ever, include them on a new build (unless money was not a concern).
All of the suggestions to build a smaller or a simpler house have merit in reducing overall construction costs. However there is a complicating factor with a custom house in a high cost real estate area such as Toronto. The cost of a premium infill lot in a mature area is so high, well above the average cost of average homes, that designing and building a more basic home can actually be value destructive in the long run.
I realize that this is a first world high grade problem and still feel extremely privileged and fortunate to be able to be able to take on such a project, even with the stress of the cost overruns, when there are so many families struggling to get any kind of housing. However this is really just magnifying our bigger problems as a society of how to build more affordable housing with the crazy costs.
One of the things mentioned in the Risinger video above was converting interior space into outdoor space. Porches and so on. Not free, but cheaper than full interior space.
Interesting idea, but some things that work in Texas won't work in Canada :)
I spent plenty of time living in climate zone 7. We loved a good outdoor fire pit in February!
Very good point around the cost of the lot and what you need to build to retain value in this market.
In some ways, the only way to build a small house and not get completely hosed is to buy a lot and get approval to sever it into two lots, and then build two smaller houses and sell one.
I'm renovating an old house and building a new, large garage with an apartment in Coastal Ct. I've had multiple bids on both and am almost finished with the garage. It's an expensive area but not like Toronto or Metro NY.
Still, the garage will come in around $285psf. The house renovation, since it's down to the studs with everything new, will be $350-$400psf. Everything is expensive.
However, you can buy a small home, not on the water, for $400k. It's much cheaper to buy used.
I'm selling a home in Metro NY soon. It's go for around $280-$300 psf.
BTW, be careful quoting CAD vs USD. 75% difference.
I don't know if DC is quite as expensive as Toronto, but I think the fundamentals are similar. Here, pretty much every new house is built to the maximum size that the zoning will permit, it's what the market dictates. So I suspect it's probably an economic mistake to try and save money by building a smaller house, once you factor in the land cost and the soft costs -- which are considerable here, hundreds of thousands of dollars on a new build -- you want to spread those costs over as many square feet as possible.
I'd also add that building an uneconomically small house is also quite non-green. Those are the kind of houses I see getting torn down regularly.
At a certain point you have to acknowledge that things cost what they cost.
"At a certain point you have to acknowledge that things cost what they cost."
Bingo.
I would add that you should design/build to what you can afford, not lament what you cannot.
Original projects that were affordable have now become unaffordable due to exceptionally long permitting delays during Covid and unprecedented escalating building cost and interest rates. It would not have been reasonable to plan for such a large contingency at project outset. No one intends to design something they can't afford so they can lament about it.
I'm not so sure. I've just been through the same experience and am still going through it.
We bought a place during the pandemic with the intention to build/renovate. I was shocked at the quotes. Materials were at an all time high. GC's were booked solid and didn't even want to bid on the project. Meanwhile I was going through 18 months of expensive, deal killing bureaucratic applications, meetings and presentations, including FEMA, any of which could've been devastating to the project if not approved.
It was a calculated risk that cost a lot of money. Much more than I anticipated. The architect, surveyor, engineer(s), Health Dept., State, Tree Huggers, Federal Government and multiple Town officials and Departments had a say with associated fees. The reason the property hadn't sold was because of all the problematic hoops that nobody was willing to jump through or tackle.
The good news was we were successful. The bad news was building costs hadn't come down. But we decided to move forward.
When were done, will most likely be upside down. Long term, I think we'll be fine.
This reminds me of the first house I built for myself 43 years ago. It was a calculated risk by a young man who many thought was a fool. I was upside down when I was done with that one too. Today, it's worth 12 times what I built it for.
"At a certain point you have to acknowledge that things cost what they cost."
...and decide to take the risk, or not. This stuff isn't for the faint of heart.
"...and decide to take the risk, or not. This stuff isn't for the faint of heart."
Amen, brother!
Well, to be fair, when we started our project two years ago, we could afford the build. And we'd planned for a nearly a 50% contingency budget knowing that things may take longer or cost more than expected.
But what's happened since then is that costs have risen and eaten up the entirety of that contingency budget such that if I were to kick off the project now, I'd be operating without a contingency budget at all. Which seems like a super scary place to be!
We are building our retirement home in Revelstoke BC. Our estimated costs are over double what we thought when we started this process a couple of years ago.
We have downsized our design (1600 sq ft) to eliminate a couple of rooms on a second floor. And we'll get by with a carport and shed/seacan instead of a garage.
We're looking for comfort - not luxury. But as others have said ... once the initial design is drawn it's hard to make significant savings on interior choices.
One thing we didn't foresee is the cost of consultants required to build in BC: Structural engineers stamps x 2 (because a portion of the house will be Timber Frame so 1 stamp is not adequate), GeoTechnical report, Riparian assessment (b/c we are with 30 m of a drainage ditch that runs a few months a year), Civil Engineering (to verify that our sewage line is installed properly & inspection by City is not enough) etc. Each requirement has a logic behind it, but the costs have sure added up.
We feel when we move in we'll say we have made our most brilliant decision ever ... or the dumbest! It's certainly not for the faint of heart.
Do you want to bring the plans here and see if people suggest ways to cut cost?
Envelope and stucture can go up in many ways - e.g. using SIPs or CLT or woodframe or how your foundation is done and how deep you dig down if at all.
Finishes - even more room to play with. Mix Olympia tiles with some fancier ones - get your plumbing fixtures in the US - that can easily cut the cost in half.
As someone mentioned - use fixed windows and have 1-2 operable windows in each room.
Review your heating and cooling (e.g. radiant heat is an expensive extra that some are attached to and some can let go of) or any other costly features.
I'm so sorry that you are in this situation. It really is difficult to give up on getting a home that you have worked so hard on and pinned your hopes on. All of the ideas here are great. My advice would be to 1. buy something you can remodel or 2. start out with an extremely simple build.
If you buy existing, you might be able to get most of what you want by remodeling, and you could do it over time if needed. Not the most convenient solution, but an option. There are some definite advantages to this - think mature landscaping, established neighborhood, a place to live immediately. Also, starting a home that is extremely simple and modifying it over time would be another way to get some of what you are looking for to make it feel like yours. Again, not convenient, and you will probably end up paying more for such changes than you would if it was an original build. The good thing about both of these, though, is that you could make the changes over time, if that helps with the budget. Otherwise, do it all at once.
I also want to mention that anyone can hire a designer over an architect (shameless plug here) and get the same service, usually at a much lower price. And they can really help you figure out the best way to get most of what you want while keeping costs low.
Don't give up! You will get there with some persistence and creativity. Best of luck to you!
I want to inject a caveat into my reply. Starting with an extremely simple build may not be an option in the area you want to build in, due to city code. This is another thing that has dramatically increased costs. There are requirements for building that involve saving energy, etc. that are good to have. However, some cities require a certain "look" to homes that can also impact costs. Be sure to inquire about these things with the local building and planning departments before you make any decisions.
Building a new, single-family home is a luxury. If you're going to do it, you should do it as well as you possibly can, because it's probably going to exist for a long time. Yes costs have gone up significantly, and as a home designer it has affected some of my clients.
Even before the pandemic and recent inflation, building a new home was expensive. I had designed a Pretty Good House for my wife and me, to be built on land her parents would give us. I was going to do most of the construction myself. I can get discounts on materials and subcontractor labor. But I still couldn't justify the costs, so we bought an old farmhouse nearby instead, for less than it would have cost for materials and subs only for a new house, and a third or less of what it would have cost to have a contractor build the house.
I'd rather be in a new, highly insulated home with excellent indoor air quality and features tailored to our lifestyle, but it simply wasn't a smart choice, or even possible for us ten years ago. Building a new, single family home is rarely a smart choice if there are existing homes available to buy.
I'm not saying people shouldn't build new homes; I'd be out of a job if that were the case. But the American dream that everyone deserves their own single family home is simply not realistic, and not the case in most of the world. I'm sorry that you got caught in a period of high price changes; that is unfortunate. I'm sure it's disappointing, as I was disappointed when I realized that I wouldn't be able to build my dream home. But my sympathy only goes so far, when so many people in the world get by with so much less.
I hear you. This is beyond a 'first world problem'. It's more like a ' 1% of the 1% of first world problems'.
Lots of others much worse off in general all over the world. And even those in North America who have homes and are already relative winners in the lottery of life are dealing with real problems like worrying about wild fires or hurricanes or flood or earthquake -- not to mention life issues like cancer and addictions and job losses and family strife.
I get it. All of our problems are relative. But in the specific context of a forum on the topic of home building, I figured this was fair game to raise...
I didn't mean to minimize the pain you're feeling--I totally understand, and price changes in recent years have certainly been quick and extreme.
The one that I've found that works well is to start from an old one/two story all brick and add stories to it. If you are lucky some of the original house can be reused but in a lot of cases, it is mostly a gut job plus a build on top.
If you sharpen your design pencil, avoid C of A and keep it as simple as possible, it can be done for a reasonable price. Won't be cheap but less than starting from scratch.
Places you can save a lot of cost:
-go for prescriptive details. First time I did this the engineering fee was 15K, by reworking the details the 2nd time around with a more complicated design the fees were 1.5k.
-don't touch stairs. Moving or redoing stairs is a big budget item.
-try to get a place with a usable basement. When doing a job like this, you can get more basement height without underpinning by raising the floor joist but that means everything on the inside must go.
-avoid extensions. A 250sqft back extension costs about the same to build as whole 750sqft floor. If you need a larger footprint than what is there, cantilevers are your friend.
-build as big as you can. Incremental cost of extra sqft is pretty much noise when building.
Still won't be cheap but simpler. It also means starting with a standard mortgage instead of a construction loan.
It seems to me you fell into a very similar trap I did. I wanted everything when I was planing without considering everything I add cost money. I feel it is all to easy for the architect to draw up plans well beyond the budget you set together and avoid having the hard conversation about controlling the costs. At this point you have two choices one is forget the budget and build this dream. The other is forget this plan and start over and make a new plan that fits your budget.
I think you are kidding yourself if you think a custom home was ever built for less than market value. Custom home cost more and sell for less because all the strange stuff you like and want costs money to build and the next owner will spend money undoing it. I think it would be foolish to build a custom home with a plan to sell it anytime soon.
Some of the production builders in my area have started offering to build their designs on your lot and the idea sounds interesting.
Walta
That's a good point, Walta. In my 20 years of designing homes and renovations, my clients and I always talk about value. I can't recall a time when the changes we were making, or a new house on undeveloped land, would "pencil out" on day 1. Based on typical appreciation rates, most will probably recover their costs after 10-15 years. Every situation is different, of course, but that's what I've seen in the northeast US.
And the same is generally true about renovations, when you read articles with titles like "Top renovations that increase your house's value," the recommendations are for things that increase the value by 80-90% of their cost, versus things that return much less or even cost value.
But on the flip side, it is possible. Production builders build new houses to sell, presumably they make a profit or they wouldn't keep doing it. Same with spec builders. And flippers renovate houses and sell them at a profit. So what's the difference? I think it's that being in the business and doing enough of it gets your costs down to below the tipping point.
It's different with developers because they typically buy large tracts of land instead of a single buildable lot; they have very few different house plans to choose from; they grind their employees and subs as much as they can get away with, because they can. Building a single spec house is very risky, aside from rare situations. I've heard many horror stories about spec houses that wouldn't sell.
Hopefully we all know what flippers do--add some lipstick and sell their "renovations" to the unsuspecting public. Maybe some actually do good work but I haven't seen it.
"I think you are kidding yourself if you think a custom home was ever built for less than market value."
Building custom homes for profit is a big business here. So much so, that there were more investors buying up old homes, tearing them down and rebuilding than builders doing it. It was not uncommon for investors to profit several hundreds of thousands when doing so.
It's so common that almost every trade asked me if I was selling the house or living in it after completion and almost seemed surprised when I told them I planned to live there for a long time.
It's slowed down now with interest rates and construction costs and many investors are trying to sell their lots plan and permit ready.
I have a friend who builds spec houses, and she generously shared her books with me on a recent build. I was shocked at how little profit she made -- roughly 15% of the sales price.
When you think that she had to tie up a big chunk of money for two years or so, the value of her time, and the risk that the market could turn against her and wipe out all of the profit, it didn't seem like a lot of profit.
My back-0f-the-envelope calculation was she was making about 4% annual return on her capital, and paying herself $35-$40/hour. Considering the risk that doesn't seem like much.
AC200,
Is that really a custom home building though? It sounds to me more like high end spec.
Malcolm,
I guess it depends on your definition of custom. Many of these investors use renowned architects, hire designers and push the envelope on design and features.
Here is an example in the area I am building. I would consider this a custom house. This house is not my taste. Too much focus on nice instagram shots and too little on function
https://www.youtube.com/watch?v=HpygVRYx1xo
EDIT: It's really not the definition of custom I'm debating, it's an example of a whole local industry that designs and builds infill homes with designs, features and finishes that are typical of custom homes and are sold for profit day 1. The interest rate environment has put a damper on this activity though.
I'd say the distinction is whether the owner is known.
Custom -- built for a particular owner, to their design
Spec -- build the house, then try to sell it.
That is the thing. These high-end infills are all glitz and little modern building science. If you talk to people who build those things they do thing you would not want to.
They are in the business of selling high-end looking finishes slapped on a large square footage. With design decisions (like all glass railings - inside and outside - or in your example a solid glass wall ). 5,100 square feet is not a "pretty good house" it is a "pretty hard to justify the size" house.
Fishbowl glass windows everywhere - building science be damned, privacy is a word they have not heard of - they are not installing the best u-value windows in case you wonder.
So if you want light with privacy and good U values windows, and design clerestory windows or make other decisions that bring the light in without sacrificing privacy - that, not surprisingly, will cost you more.
They have garage entrances that require you to drive a mini (notice this is advertised as a two-car garage, but really...) - the rooms look spacious but only when empty and so on.
If you look closely - none of them have much of modern building science in them.
And if that is what you are after, - the stuff you do not see - that will cost you more because they are not even putting "the stuff you do not see" there.
I hear everyone who's saying scrap the plans and start over. After two years spent pursuing this idea, I don't think we have the mental energy for that. So I suppose we will have to buy existing.
But in all honesty I feel like learning about Building Science has completely eliminated any excitement associated with buying pre-built homes.
Literally all I can think of when I see existing houses is to wonder what nightmares are hiding behind the walls and to imagine all of the air leakage, moisture and bug issues that await me down the road.
"Where ignorance is bliss, 'tis folly to be wise" -Thomas Gray
Have you considered using a predesigned plan set? There are several companies offering "Pretty Good" plans. I've been thinking about getting into that market myself, though custom work is keeping me too busy to get to it.
Michael, can you share the name of companies offering plans you'd consider "pretty good"?
Hey, I have talked to these people and my GC has worked with them successfully: https://www.passivedesign.ca/
They are based in Canada, Michael might have suggestions for US based firms. They can also customize plans and seem like great people. I think it is flexible based on your level of performance/efficiency desired. We need more options on the market and money invested into advertising and educating people. There are almost infinite sources for pretty terrible house plans. Too many people build expensive homes with no regard for modern building science.
Hand build houses from pre-1940s can easily continue for another 100 years.
The modern folly of tear down and build again is not green - the greenest square footage is the one that is not being built.
If you have the time and patience - they do come up occasionally. Even if you have to add insulation to a double brick wall it may still be worth it. Rehabilitating may take time, but now that scrap and build new is costly, is a greener choice anyway.
Maxwell: “ Literally all I can think of when I see existing houses is to wonder what nightmares are hiding behind the walls and to imagine all of the air leakage, moisture and bug issues that await me down the road.”
There is hope on this front. We purchased a “fixer” home with no insulation, hollow exterior doors, original wooden windows..etc. built in 1905 or so. This is in climate zone 6A, with temps reaching -35C in winter. It was as bad as it gets with respect to efficiency.
Now, the home compares in around the 90th percentile of efficiency when compared to homes in our area, according to Enbridge gas utility data. The major updates include, new (but not great) windows with magnetic acrylic inner storms, blown in cellulose for walls, spray foam flash and fill in attics, some spray foam walls in renovated areas, high efficiency condensing gas furnace with ECM motor, and standalone HRV system. These were all done in stages over the years, mostly DIY (except for any spray foam or furnace work) so we could do them all without borrowing money.
Just throwing this in as you can buy an ACH 8-9 home (which is what ours tested at) and make it a lot, lot better.
maxwel_mcgee,
"Literally all I can think of when I see existing houses is to wonder what nightmares are hiding behind the walls and to imagine all of the air leakage, moisture and bug issues that await me down the road."
I guess it depends where you are. A code minimum house built near me on Vancouver Island will be very well built due to the combination of a progressive building code, and good inspection.
Have you considered or priced something like this? Located in Carp, Ontario.
https://ekobuilt.com/passive-house-kit/?gad=1&gclid=CjwKCAjw6p-oBhAYEiwAgg2Pgkmjpxi1KVbs_rH_-gUr2ZZAdnvGOUJSujP-Ny1Ay0MW7OJP1aFGWBoCe4oQAvD_BwE
Those kits rarely fit onto urban infill lots. Setbacks get in a way.
I empathize with your frustration. The soaring construction costs are a common challenge, not exclusive to Toronto. Seeking local advice and exploring alternative methods might help navigate the situation.
One potential solution is to explore different options for purchasing an existing home instead of building new. Sometimes, it can be more cost-effective to buy a house that's already on the market, especially given the current construction price surge. You might find that existing homes in your desired area are more affordable and can meet your needs with some minor renovations.
When I faced a similar issue while buying my own house, I found a company that was incredibly helpful in navigating the real estate market. They provided insights and options that made the home buying process much smoother and more cost-effective. You might want to check out The Property Buying Company—they offer services that could help you find a good deal and ease the transition from building to buying. Here’s the link to their website for more information: https://www.thepropertybuyingcompany.co.uk/
Interesting thread, sorry to hear about this struggle 😔 Any updates, @Maxwell_McGee?
We also worked with a Toronto architect, it was not a positive experience and have not spoken to her since permitting but we have a great GC so we are nearing the finish line of construction. We built out of the city in a rural area, but your numbers seem ridiculous to me. Not sure your status but my GC has a really detailed estimation process and they are very honest people if you want me to connect you.
I see a lot of value in buying plans, there is a company called Passive Designs that seems to do good work. Custom design is a luxury and in many situations I’d much rather save on design if you have a typical city lot (we did not) and just customize it with the interior selections and finishes. Our “custom” design was so boring, so soulless, so blah, but at least it was quite basic to build so in a way I am actually grateful to the architect for that - though I’d prefer a smaller build and smarter programming so we could have done something more architecturally interesting. I have so many regrets but ultimately we had the financial flexibility to expand the budget in order to get this thing built, even with the imperfect design.
Anyway, if buying plans is not an option I think the next smartest option is a designer rather than an architect. Especially a good design-build firm. And then I’d look into doing a renovation rather than building. I am curious to see an update in this thread, though without proper notifications this might never be seen :)
See my post (#67) below. We decided to go ahead and build.
Our builder is excellent -- I'm quite happy with them and their process. The pricing is more a function of our design choices than it is our builder (I definitely don't think we're being ripped off in any way).
I'm certain we could build aspects of this cheaper, but the whole point of the custom home exercise was to get what we really wanted. I think we'll achieve that. The main compromise we'll be making is on budget...but, I suppose I have the rest of my lifetime to earn more money.
Glad to hear you figured it out! The price makes more sense if it is based on your design and selections rather than a lowest possible price with basic finishing. I found it tricky because our original budget from the architect was based on “basic interior finishes” and still over budget (should have been redesigned but architect was more interested in getting it done rather than our budget & preferences), ultimately that was just not what we wanted so we had to spend more to get what we want. I don’t think the architecture service was worth more than half of what we paid, but when it comes to construction costs you basically get what you pay for though.
If you take over the general contracting and some of the more DIY-friendly tasks, you can save a bundle. I know this may be impractical for you, but just throwing it out there. And it is a pain dealing with subcontractors, so that's another downside.
Framing is pretty straightforward. Insulation is not that hard, if you choose wisely. Electrical and plumbing are both doable, with some reading and learning. These two especially will save you a lot of money.
So a quick update to the thread.
Not too long ago, I'd read this book https://designingyour.life/books-designing-life-original-book/
In it, the authors advocate that when faced with a major decision, you should "prototype" the answers by mentally committing to a choice for a few days and trying it out -- assessing how you feel and imagining your life if you were to truly commit to that path. And then trying out an alternative choice and doing the same thing.
So when I started this thread, I'd inadvertently tried out this approach. We'd told our builder we were going to pause our project indefinitely and mentally we walked away from the idea of building a custom house.
And the net result of all that is that we were miserable.
So in February of this year, we went back to our builder and said we'd go ahead. Costs be damned.
Is it an economically sound decision? Absolutely not. We can definitely buy a pre-built home for cheaper than it will cost to put this one up.
But it feels right. And we'll figure out a way to make the numbers work somehow.
So our project is happening. Excavation, footings, foundation walls are in; framing started this week. We should hopefully be dried in by late fall.
Congratulations. Buying with the intention of staying somewhere long term (10+ years) makes it easier to justify current pricing. I initially wanted to build my own house ~3 years ago but found that as a first time home buyer in an area with expensive real estate it made more sense to buy existing home stock and slowly make the house our own, but if you have the means to make it work go for it.
My partner and I were in a similar situation about a year ago when we were building what we thought would be our dream home. Like you, we spent over two years in the design and permitting stage, dealing with delays from the architect and the city. What hit us hardest was the rising construction costs – by the time we were ready to start, the cost per square foot had jumped by almost 40%, making the whole project feel impossible.
We ended up pausing the build because it just didn’t make sense financially anymore. We were devastated, but then we started looking into alternatives. That’s when we contacted https://threemovers.com for help with moving our family to a new location where we could still get the space we wanted without the inflated costs.