Good work ain’t cheap and cheap work ain’t good.

– Devon Stone, Construction Programs & Results

by Keith Wilder, CGP, CAPS

This is a monthly blog geared to help homeowners address building and maintenance issues. In my world, as a contractor and President of the Tri-County Home Builders Association, I see the need for an educational model on what excellence in building entails – namely to ensure a fair and quality product that is hassle and liability free. This month features why it costs so much to remodel, repair or build a new home.

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Why does it cost so much to remodel, repair or build a new home? I get asked that question many times and every contractor out there knows what I'm talking about.

Scenario:

I’ve had a customers ask me to build a structure using estimates from years past. I know lumber, metal and subcontractor prices have almost doubled since then, plus there’s been code upgrades which push costs. A note on the quality of products could also be mentioned as we are progressing in the construction industry. I wish prices would remain steady or even go down, but that’s not the economy we live in. I too have to price accordingly to stay in business, so I can’t go back and charge the same price as I did years ago. Here’s why…

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First of all, there is the cost of materials. Just like milk, eggs, bread and gasoline, building materials have gone up in price in the last 10 years, with many items more than doubling. Some items such as plumbing fixtures have gone three or four times in price. So material costs have gone up including the cost of the glue to lay down your subfloor, concrete for your foundation, the cost of septic systems, roofing materials, carpet, windows and so on. As a result, contractors, subcontractors and suppliers have had to raise their costs in order to at least survive.

Second the price of labor needs to be considered. The price for quality construction workers is not cheap. Skilled labor comes with a cost: all of my men and women have families that they support and they need to make enough money to pay their bills. What’s more is the happiness factor: they need to be happy enough to come to work. Labor prices have increased also, and subcontractor labor is included in that category as they have to keep up with the going rates to survive and feed their families as well.

Next we have the big kicker, government regulations. And lots of them. Government agency costs include fees, licensing, taxes and permits. Government and regulatory agencies such as the following all play a part in driving contractor costs to build:

• The Governor – State of WA sales tax at 7.6% of gross costs
• State Revenue tax (similar to capital gains – tax on profit)
• Payroll taxes – a Federal tax requirement
• Department of Employment Security – for lay-offs
• Department of Labor & Industries – for workers’ compensation insurance (construction has some of the highest rates in all of the State)
• Licensing – business licenses (federal, state & city), company vehicles
• Bond – every contractor has to have a bond in the State of WA
• Building permits
• Compliance with ever-changing energy & building codes
• Classes to keep up with the codes
  
  

All of these extra expenditures eat at a contractor’s profit. A lot of these programs are beneficial and needed, but it’s the quantities they’re asking that makes the cost to build that much more expensive. For example, say you want to build a $250,000 three-bedroom home and it has been quoted at $300K, why does it cost $50,000 more? Essentially because of the aforementioned agency fees and taxes. As a business owner, every time I turn around some entity of government is taking more and leaving less. I know I’m preaching to the choir with other small business owners, but these agencies amplify the overhead for any business owner, which in turn makes costs higher to build and, unfortunately, squeezes profit margins.

A note of “good” news is that through our local Tri-County Home Builders Association we work to fight government over-regulation. The Spokane and Tri-County Home Builders are committed and travel as a team to Olympia every year to encourage and persuade government officials to make it easier to stay in business for the building industry.

Being a general contractor is not glamorous but it is what I enjoy doing. I’m in business and have to pay my employees and staff, computers, printers, the paper the estimate gets put on, the trucks and trailers and the tools that go in them, the gas that it takes to get to a job or an estimate request, and all the overhead costs. All said and done, there has to be enough to feed my family, buy a gallon of milk and a fishing pole too.