Cost blowouts in home building are common, but can be minimised
No-one wants cost escalations on a new home build, so why does this happen?
An Auckland homeowner, who spoke to Stuff and wishes to remain anonymous, has just completed a high-end beach house on the Coromandel Peninsula, which came out a massive 31 percent over budget.
"Everything was itemised, and we paid over $2000 to a quantity surveyor to get what we thought would be an accurate costing for the entire project," he says. "He was out by more than $600,000. And when we discussed this with the architect we were told, 'oh that happens all the time'.
The homeowner says there were material cost escalations and changes to local council regulations that needed to be accommodated. "The council consented our drainage system, then came back later to say they changed their mind and wanted something completely different, which cost us more than $100,000 extra."
The build was also delayed due to a neighbour's concerns about the plans. This resulted in a hearing before an environment commissioner. And although the case was dismissed, the process added around $30,000 to the build cost.
Homeowner Liz Campbell detailed her situation on Stuff last week – she and her partner Vaughan Cooper expect their build to be 25 per cent over budget by the time their house is completed.
They were let down by "by a number of contractors not turning up or doing shoddy work". They also changed builders during the build as their first builder was going to manage the project, "but that didn't work out".
But why does this happen? How can builders and quantity surveyors get it so wrong? Or is more to do with the homeowners?
UK-registered architect Chris Moller, who hosts Grand Designs NZ, is familiar with budget overruns – they happen often on the show, and it's not always the most expensive houses.
"Building a house is much more complex than most people realise, so there can be a huge range of different reasons for budget blowouts. But just like going bush or out to sea, preparation is everything – when this doesn't happen, then things begin to unravel."
Sarah and Philippe Lods' Grand Designs build in Freemans Bay in 2016 was a notable example of cost overruns. The build went $1 million over the $1.5 million budget.
"There were various reasons for their cost overrun," says Moller. "Part of it was due to rapidly inflating building costs (materials and labour) and the impact of changing consent requirements following the Christchurch earthquakes.
"But also there was Philippe's extreme attention to detail, which was well beyond normal building practice expectations – especially for concrete precast panel construction. But that was their priority and the end result speaks for itself."
EXPECTATIONS 'OUT OF KILTER'
Tony Pexton, Auckland president for the Registered Master Builders Association, says budget blowouts usually happen when people's expectations are out of kilter.
"It happens when people don't understand exactly what has and has not been quoted for right from the start. For example, they may say they will get the bathroom, kitchen and light fittings, but then fail to take those costs into account.
"Or they fail to add on the (not insignificant) costs of blinds, drapes and carpets. And landscaping on a high-end property can be anywhere from 10 to 30 per cent of a build cost. If you are building a $1.5 million house, then suddenly you are looking at $150,000 to $450,000 that you may not have taken into consideration. People tend to gloss over these things early on in the project."
There may also be problems with siteworks that were not able to be predicted in advance.
Pexton believes a negotiated contract is usually safer than putting a job out to tender. "A negotiated contract is all about transparency. If you ask the builder how they came up with a figure, they can show you a complete breakdown of all the costs, including prices from subcontractors.
"Some builders will allow as little cost as possible for certain items to make the price look cheap, then they will sting you further along in the process. There are some pretty cunning people out there. On tender day, they will make sure it looks like a great deal, but they won't have put in enough to cover everything."
Pexton says a good builder will look at the plans to see if there are any potential difficulties and discuss these with the architect. "Essentially, we are building the house in our heads. That way we can be upfront at the start and point out areas that may involve extra cost.
"I would also caution talk on square-metre rates, because they generally apply to the house build cost only. They don't include all the fruity stuff – the blinds, drapes and carpets."
So how are homeowners supposed to plan their finances with this uncertainty?
Moller says people in the construction industry often talk about the triangle of quality versus time versus cost. "If you are very clever or lucky you might achieve two of these, but normally you only achieve one, so the first thing is to prioritise cost over everything else, to plan carefully and stay focused, and avoid making changes as you go.
"Having a great team is also important; it makes all the difference."
AMBITIONS NEED TO BE REALISTIC
Moller advises homeowners to be "very realistic" about their ambitions in relation to your budget. "The more thoroughly you plan from the outset the better. Make sure you have a generous contingency in place. Then manage all costs constantly, and have backup plans for when things go wrong or you need to make changes."
Pexton agrees it's all about the homework. "We suggest you talk to the builder and make sure you know exactly what is and isn't included. If we are pricing a house at $1.5 million, we will generally tell the owner they are going to be knocking on the door of $2 million by the time they add on landscaping, extra fittings and joinery inside, such as cabinetry in a media room and elsewhere."
These items can all be accommodated in a budget when you add them in right at the start.
In a nutshell: "Prepare well, get a good team on board and most of all enjoy the adventure bumps and all," says Moller.
Auckland homeowners Mike and Rosemary Tisdall are embarking on a second home build project. Their first was a high-end house in Orakei with a strong design aesthetic. But the costs at the design stage were escalating, so they made some big changes early on.
"Doing the work beforehand can head off many of the potential surprises later," Mike Tisdall says. "Or at least you should consider creating a financial buffer so that the other surprises can be dealt with a little more comfortably.
"The answer is always trade-offs and compromises. And you have to be quite judicious about how you trade things off so that it doesn't destroy the concept, the aesthetic result and the level of liveability you are prepared to settle for.
"There are always alternative materials you can consider. For example, we substituted a whole interior wall of zinc (inside the house) for Gib. It was probably a better decision anyway, for lightness and for the art we needed to hang.
"I think it's about being awake to the fact that there will be cost challenges, being open-minded about what the solutions might be, being creative in looking at alternative options, and firmly locking down as many of the elements as you can at budgeting stage to minimise surprises.
"And most importantly, it's about finding compromises that don't destroy the very essence of what you're creating."
Moller says not every project goes over budget, and he cites two Grand Designs projects that are good examples.
"Guy Marriage's Kapiti Coast Bach (also known as the Stilt House), was only $175,000 all up, and what a gem. And George and Yvonne Hilgeholt's beautiful Black House close to Nelson was built very economically using clever prefabrication techniques for $550 000, which is not bad for a house of 300 square metres."