November 14, 2011
Nation's Building News

The Official Online Weekly Newspaper of NAHB

NAHB Survey Finds Single-Family Home Construction Costs and Profits Down in 2011

Providing builders with a wealth of data against which they can make cost comparisons, NAHB’s latest construction cost survey of single-family homes points to a recession-related downward trend in home sizes and prices and shows that builder profits on their homes have skidded to an all-time low.

The NAHB survey was initiated in 1995 and has been conducted six times since then.

More recently, the collection of information on the various components that go into the price of a typical single-family home — in 2009 and this year — has used a better, more representative sample of single-family construction across the country.

The 2011 survey shows that construction costs accounted for almost 60% of the final sales price of an average home, and the cost of the finished lot accounted for 22%.

The survey — which is based on responses from 44 builders — is not large enough for a geographic breakdown, and builders are likely to spot differences in where some of their figures come in compared to the national averages provided.

“Building practices, the cost of labor, the cost of land and, to some extent, the cost of the materials can vary from place to place and depend on the nature of the particular home being built,” writes Heather Taylor, an NAHB economist and the author of the study.

The survey found that the average size of the homes built by the builders participating in this year’s study was a little over 2,300 square feet, a decline of 400 square feet from the previous survey in 2009. Data from the Census Bureau suggests a similar downsizing movement.

Lot sizes, however, remained about the same over the past couple of years — averaging 20,614 square feet in 2011, which is just under half an acre, compared to 21,879 square feet in 2009.

The average price of a new single-family home in this year’s survey was $310,619, which was down significantly from $377,624 two years earlier.

The total construction costs of the home accounted for 59.3% of the sales price, almost identical to the 58.9% share found in 2009. But those shares were higher than those found in previous surveys.

Finished lot costs accounted for 21.7% of the sales price, which was only slightly higher than the 20.3% share in the prior survey.

The share of the sales price representing the builder’s profit dropped from 8.9% in 2009 to 6.8% this year.

Historically, the NAHB surveys showed the highest profits in 2002, when they were 12.0% of the sales price, and second highest in 2007, when they were 11.2%. In other years, they ranged from 9.1% to 9.8% of the price of the home.

Showing little departure from 2009 survey findings, the remainder of the sales price in this year’s survey was comprised of overhead and general expenses (5.2%), sales commission (3.3%), financing cost (2.1%) and marketing cost (1.5%).

The new study from NAHB also identifies a big decline in the average construction costs of a single-family home — to $184,125, down from $222,511 in 2009.

This year’s construction costs were the lowest since 2002, when they were almost $152,000. In the following survey in 2004 they had climbed to almost $193,000.

The study suggests that this year’s lower construction costs may have resulted from the decline in the average smaller finished areas of the homes.

The average price per square foot of the homes in the 2011 survey “remained relatively stable,” the report says, at $80, compared to $82 for the larger homes studied in 2009.

Among other findings on construction costs:

  • Framing and trusses accounted for the largest share of construction costs (13.5%), followed by excavation, foundation and backfill (9.3%), plumbing (6.0%) and cabinets and countertops (5.6%).

  • HVAC, siding, tiles and carpet, electrical wiring and drywall each accounted for between 4% and 5% of total construction costs.

  • Although framing has always been responsible for the largest share of construction costs, the share fell from 15.6% in 2009 to 13.5% in 2001. However, because of a decline in home sizes during that period, the cost on a per-square-foot basis remained relatively stable — declining from $13 per-square-foot two years earlier to $11 this year.

  • The share of HVAC as a percentage of total construction costs rose from 4.0% in 2009 to 4.8% in 2011, and the share of insulation rose from 1.5% to 1.8%.

    “In an effort to make homes more energy-efficient, the codes concerning new homes have become significantly stricter,” the study says, which could explain the rising share of both HVAC and insulation.

  • The share of electrical wiring rose from 3.7% to 4.4% between 2009 and 2011, which could reflect higher costs for copper, which is used in the majority of electrical wiring.

    “Also, as local jurisdictions adopt newer versions of building codes, the use of arc fault circuit interrupters may be on the rise, which could add several hundred dollars to the cost of electrical wiring in some homes,” the study says.

  • The shares of various fees paid by builders to local governments — for permits, inspections, estimated impacts — remained relatively stable at about 5% over the two-year period between surveys.

The complete study, "New Construction Cost Breakdown," is available at  www.nahb.org/ConstructionCostBreakdown.

For more information, email Paul Emrath at NAHB, or call him at 800-368-5242 x8449.

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