Factors that Affect Construction Costs

The United States Census Bureau reported that the average cost of a home in the United States in January of 2018 was $385,000 with the median home cost being $326,400. They also reported that for the year 1975, the average and median home cost in the United States was $42,600 and $39,300 respectively. The preceding numbers represent a national average; however, housing cost can vary widely across the country or even within very limited areas. Prices can range from less than $100,000 to millions of dollars for houses of comparable size, quality, and amenities. Factors that contribute to residential construction costs include location, quality of materials and finishes, and special features included in the home.


Many factors contribute to the overall cost of a house, but one of the most important contributing factors is the location of the house. The selling price of all real estate is subject to the variables of the marketplace and values both rise and fall on an ongoing basis. While it is possible in some instances to move a house, in most circumstances it is an impractical and costly option. Quality of life issues such as school choice, commute times, safety issues, crime rate, neighborhood quality, employment opportunities, leisure, and recreational activities are directly tied to the location of the property. Other variables such as local building codes and regulations can affect building costs. For example, one municipality may require high impact and building fees, while a neighboring municipality may not. Specific locations may also require stricter and costlier building standards such as the requirement to install high impact resistant windows in buildings along coastlines in hurricane prone areas. Location can also play a role in construction costs associated with the quality of materials, finishes, and special features. Homes built in affluent locations tend to also have higher quality materials, finishes, and upscale special features.

Quality of Materials and Finishes

Material and finishes can have a significant impact upon the cost of building a home. For example, using an expensive exterior finish material, such as brick veneer, could cost somewhere between 9 and 15 dollars per square foot of wall area. Using a less expensive exterior finish, such as vinyl siding, could cost somewhere between 4 and 8 dollars per square foot of wall area. A small home with outside dimensions of 36 feet wide by 32 feet deep would have 136 lineal feet of exterior wall that is 9 feet tall (Figure 1-5).

Figure 1-5: Small rectangular building 36 feet wide by 32 feet deep with 136 lineal feet of exterior wall.
Figure 1-5: Small rectangular building 36 feet wide by 32 feet deep with 136 lineal feet of exterior wall.

A simplistic example without any windows or doors would have 1,224 square feet of wall area. Overall cost for brick priced at fifteen dollars per square foot would result in an exterior finish cost of $18,360 for the project, while the less expensive vinyl at 4 dollars a square foot would result in an overall cost of $4,896 for the project, a difference of $13,464. This same logic could be applied to any number of materials and finishes, such as roofing and flooring materials. In fact, it would be expected that high-end finishes would be used throughout high-end projects, thus, the overall cost increases not just for a single item, but through the entire project.

Figure 1-6: Brick exterior adds considerably to the cost of this house.
Figure 1-6: Brick exterior adds considerably to the cost of this house.

Special Features

Special features included with the construction of a house can add significantly to its cost. This can include items such as fireplaces, jetted tubs, kitchen cabinets, mechanical and electrical systems, and bathroom accessories and finishes. Many builders leave special features out of the initial building design but offer them as specific upgrades or amenities that can be added to the house.

Figure 1-7: Image of a kitchen.
Figure 1-7 High end kitchen cabinets and appliances add significantly to the cost of the house.

While it is important to pay attention to the expense of items when preparing a cost estimate, there are many other financial factors that go into establishing the value of the house that are outside of traditional “stick and brick” building components. A report authored yearly by the National Association of Home Builders (NAHB) designates what these other financial factors are.

NAHB Single Family House Cost Report

The NAHB is a trade organization consisting of builders and other partners associated with the residential construction industry. Each year, the NAHB surveys its members and releases a “Cost of Constructing a Home” report. The survey asks its members to estimate their costs for building an average home sized at 2,800 square feet on a quarter acre lot with three or four bedrooms and two bathrooms. The 2016 study determined the average selling price for a home that met those specifications was equal to $427,892. The breakdown of these costs into major subtotals is as follows:

Finished Lot (including financing) $91,996 21.5 %
Construction Costs (material and labor) $237,760 55.6 %
Financing Cost $7,636 1.8 %
Overhead and General Expenses $21,835 5.1 %
Marketing Cost $5,314 1.2 %
Sales Commission $17,448 4.1 %
Profit $45,902 10.7 %
Total Sales Price $427,892 100 %

The important element of this information is not the specific dollar amount for each subcategory, as that amount changes on a yearly basis and can rise or fall based upon market conditions. The share of price percentage for each subcategory can also change, however, it is important to understand the significance of the percentage of the total sales price that each subcategory identifies. For example, construction costs are listed at $237,760 or 55.6 percent of the total overall costs. It may be tempting to reason that when the material and labor cost estimate for a home is finished, the estimate is complete. While the material and labor costs are a significant portion of the overall budget, they really only represent a little over half of the total cost. Estimating work in this course will include determining all construction costs, not just material and labor.

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