Guide to Preparing a Building Budget

Hi everyone,

To complement the other checklists here on SS, just thought I'd start a thread on "preparing a building design budget" for your development project - be it an extension or multi-unit development.
By no means exhaustive, this write-up will hopefully assist up-and-coming developers or home owner in understanding and establishing a suitable & realistic budget for their renovation, sub-div or multi-project.

It is suggested that you discuss this budgeting process with your architect or designer before beginning the design process. Once you have a design and sketch plans to a sufficient level of detail I suggest you have a specific costing prepared by either a builder, quantity surveyor (QS) or building cost estimator. This should be prepared prior to any council submission on projects that are cost sensitive.

Why is an accurate budget important?
Along with the fabric of any existing building, your site and councils? building controls, your building budget is a major parameter within which design is carried out.
It is important to consider your budget options carefully as different development approaches and budget amounts can result in very different design results.

For example, if a workable budget is not clear at the starting point (i.e. too low) then many good design opportunities may be discarded because they are feared as too expensive. When this occurs it may be difficult to achieve the desired brief even when the budget is adjusted later.

What guides your budget?
The budget for most renovations or multi-unit projects is determined by the chosen development/design approach.

Below are some typical examples:-

Investment budget
This approach is concerned with maximising the rental return or rentability of an investment property. It may also be concerned with achieving long term capital growth, whilst minimising ongoing running and maintenance costs.

Development budget
This approach is primarily concerned with resale profit immediately following or up to 2 years after completion. In this budget the brief is formulated and costed to achieve this profit.

Capitalisation conscious budget
This budget is capped to avoid the risk of overcapitalisation on the property, which may arise if the money spent improving the property added to its current value, exceeds the likely resale value. The risk of overcapitalisation depends very much on the location of the property, the quality of the work done, the amenity added and the health of the market during the time it takes to complete.

Affordability budget
This budget is concerned with making the best use of the limited funds available and requires a design that achieves excellent value for money. On these kinds of projects the scope of the brief is restricted by the budget.

Staging budget
A staged budget approach comes about because the entire budget for the desired design is not available in one lump sum, but may be available in two or more instalments. The brief for this kind of project is then concerned with creating a masterplan design that can be completed in stages. Note: Because council approvals don?t last indefinitely, all stages should be started within the 2-5 years of the approval.

No budget
For many projects the final budget is borne out of the brief and the architects design - not driven by the budget. This is not to say the budget is limitless - simply that amenity, style, features and finish take precedence over cost.

Budgets in Summary:

Most budgets types are overlaid with one another and are determined with the assistance of other experts, such as;

? Real estate agents
? Banks and mortgage brokers
? Investment consultants and solicitors
? Builders and building cost estimators
? Your architect or designer

Once you have decided on the type of budget you have, you will find the amount to budget a bit easier.

What building options do I have to meet my budget?

Your options will vary depending on whether you are renovating or building new.

Project Homes:
These are homes which are designed to be built in large numbers from a range of off-the-shelf designs.
- Represent excellent value for money
- Are very affordable

- Not designed to suit your block
- The design doesn?t necessarily take into account factors such as orientation to the sun, views, neighbours, etc..
- Can usually only be built on level or near level sites
- Not specifically designed to be ?in-keeping? with area
- Usually have a shorter effective life
- Can only be used to build new homes, not renovations or additions
- Many are considered 'standard' and their style can be very ?in? at the time they are built, but date quickly
- Always cheaply built
- Easily recognised so they have a reduced resale value

Design and construct projects:
This is where a building company quotes to build or renovate and includes the design as a package. It is a good way of knowing what the final costs are from the beginning and some of the better ones use architects for the design work.

- Are designed specifically for your site and needs
- Total cost includes the design process
- Saves you the time and trouble of finding a builder and going to tender

- Usually, they are designed more for profitability than for good design, quality or aesthetics
- You get a design that you must build with this builder - no tendering or taking the design elsewhere

Architect / designer projects:
This is arguably the best method but has the potential to be the most expensive way to design a house, extension or multi-unit project. Some development sites need to "work harder" than others either to due land costs or site constraints, and skilled architects and designers can help unlock the potential of the site to your advantage. This approach usually results in outcomes which are most tailor-made for your development site - the designs are one-off to suit your site and your brief.

- Custom-designed to meet your individual needs
- Unlimited choice of style or aesthetic expression
- Enhanced resale value
- Generally well-built with excellent attention to detail
- Designed to optimise your site?s orientation to the sun, capitalise on views, enhance privacy and generally increase enjoyment.
- Can be used for renovations on any type of home or site
- Architects are also skilled at incorporating specific requirements such as environmentally-friendly design

- Usually more expensive than project homes or design & construct for the floor area and amenities provided
- Less control over the total cost than with project homes or design and construct

Owner Build
This approach probably offers the developer the most control and highest potential for cost-savings. However, the risks are all borne by the owner, and finance, trade access and construction management are key issues to resolve. There are also big limitations on what a owner-builder can and can't do.

- Most control of entire process
- Highest potential for cost savings
- Personal achievement and emotional attachment(a plus?)
- Potential to be entirely personalised

- Risk, risk and risk
- Financing may be an issue
- Heavily dependant on good access to trades and materials

What do buildings cost overall per square metre?
Below is a guide to the average building cost per square metre for the different building options available. These are very general and should only be used as a rough guide.

$ Cost / Square metre:
$900 - $1500/sqm Project homes
$1200 - $3000 /sqm Design + Construct projects
$1500 - $4000 / sqm Architect-designed projects

What does my budget need to cover?
Perhaps the best way to look at what should be included in the budget for a project is to look at a couple of our completed projects.

a) A new 180sqm single storey weatherboard beach house with a colorbond roof. It has 3 bedrooms, study, open plan kitchen and living areas, bathroom, ensuite, powder room, double carport, lock up storage, large entertaining deck and a motorized pergola.

List of completed costs:
$232,000 Building envelope
$ 58,000 Kitchen, laundry and wardrobe/storage fit-outs
$ 42,000 Bathroom, ensuite and powder room fit-outs
$ 34,000 Double carport and driveway
$ 30,000 Decks, retaining walls, landscaping & fencing
$ 12,000 Motorised pergola (Vergola).
$408,000 Total building costs
$ 30,000 Architect?s fees
$ 12,000 Curtains, blinds & other fittings
$ 9,500 Surveyor, structural engineer, quantity surveyor
$ 5,500 Council and building certification fees
$475,000 Total costs

b) 8-townhouse inner-suburban development project
$1,500,000 Land purchase
$95,000 Land costs
$150,000 Consultants
$ 3,300,000 Construction Costs + 5% Bank Contingency
$220,000 Disbursements (Authority/Stat fees, Council fees, valuation, taxes, accounting, RE comms, marketing)
$200,000 Finance Fees/Costs
$5,465,000 Total costs

The contingency sum:
A contingency sum is often used to cover additional costs incurred for unforeseen / additional building repairs, landscaping or site works.

A reasonable contingency to allow in your budget would be 5-10% for new houses, can be up to 20% for renovations, alterations and additions, and depending on your financier, 5-10% for larger multi-unit projects.

What sorts of things can effect the cost of building?
Building costs can vary considerably, depending upon a number of factors - some more obvious than others. Some of which are as follows:

Site issues:

Slope of the site
The steeper the site the more it usually costs to build on it. This is because foundations and supporting structures are more difficult, excavation and the need for retaining walls increases, and more complex drainage issues arise. More space is usually wasted in basement and foundations, because buildings often step up the slope and there is a greater perimeter to enclosed area ratio.

Ease of access to the site
Poor access makes materials handling difficult and more time consuming, which increases the labour cost component.

Ground or foundation conditions
Poor foundations may require additional engineering and structure to support your home. Sandy or clay soils can require deep piles to achieve an adequate footing.

Excavation in rock
Rock excavation can be expensive and drainage issues may be more costly to resolve.

Demolition & clearing the site
In some cases this can be as much as 10% of the overall cost of building a new home.

Availability of services
Such as water supply, stormwater, sewer lines, electricity, gas and phone. Distance from mains can also be an issue.

Particular council or government requirements
Such as the need for basement parking, onsite stormwater detention, rainwater storage or grey water systems, septic sewage systems.

Your suburb or location
Building work generally costs more in the city than the country and even more in the most affluent suburbs. This is often because expectations of service & quality are also higher. On the other hand, unavailability of some materials in regional areas may increase costs.

Design issues:
Size of project
Probably the biggest factor in the cost of building work. This includes the buildings total floor area, bulk or volume, number of storeys, ratio of envelope to useable floor area.

Development control legislation
Planning and Building controls can dramatically effect the cost of a project and often vary from state to state or across different councils. Examples include: requirements for parking, geotechnical and other site issues, rural fire service, stormwater detention and minimum standards.

Simplicity & repetition
Sometimes a design will make good use of simple building shapes and repetitive structural elements to reduce a building?s cost per square metre.

Fit-out, fixtures and finishes
The number of fit-out areas such as bathrooms, ensuites, kitchens, laundries etc. adds greatly to the cost of a project as these are quite intensive on plumbing, electrical, joinery, fixtures and fittings.

Economy or tightness of design
Part of the design process involves careful consideration of space use and minimise waste. In poorly designed projects, circulation space can blow out and reduce the level of amenity possible for the same budget.

Design quality & individuality
A truly individual design with a large number of custom made elements, will cost more than a design with standard ?off the shelf? elements. Using standard industry practices and materials will generally reduce cost as compared to ?one-off? solutions.

Accuracy of documents
The completeness and proper co-ordination of contract & construction documents can be an important factor in the cost of construction because it can effect the accuracy of tendering, changes and additional work, and also create claims for undocumented or extra work during construction.

Building issues:

Number and type of trades
Each new trade involved in a building project will add cost directly and require overall co-ordination from the builder. A good way to reduce overall building cost is to reduce the number of building trades.

New or existing work
Building new is cheaper than alterations, additions and renovations.

Choice of builder & individual trades
Building prices do vary across the industry due to size, style of operation, popularity, profile and expertise.

The type, method & materials of construction
Traditional or standard forms of construction are generally cheaper than newer or more alternative systems.

Economies of scale
Generally medium to large size construction projects are more economical than smaller ones. This is the same for each of the trades involved and is largely because of the high set-up costs associated with construction projects.

Market forces
This can be described as fluctuations in the cost or availability of building materials, an under or oversupply of tradesmen and specialist contractors along with interest rates and other industry factors.

Contractual conditions
The form of building contract, such as ?lump sum? or ?do and charge? may also affect building cost. This is also true of onerous terms or conditions of tender such as a tight construction program, which may make keen pricing more difficult.

Legislative controls
These issues such as home owners warranty insurance, occupational health and safety, training and continuing education, licensing etc. with which builders must comply and may also effect the cost of building work.

Is Your budget compatible with your design brief?

Your ?brief? is the description of what you want your proposed building work to achieve.

In every brief there are some factors you can change and some you can?t . If you have any budget concerns, you may need to determine which factors you are prepared to be flexible on and which you are not. The following are some key factors for determining how much your building is likely to cost:

1. Development yield (for multi-unit projects)
2. Size of dwelling(s)
3. Number of fit-out areas
4. Construction materials
5. Complexity
6. Quality of build
7. Value-adding design features

Building costs (and therefore budgets) are impacted by a large number of factors. Understanding these factors and their possible effect on your project is an important part of preparing an accurate development brief and budget which will subsequently affect your feasibility studies and bottomline.

Good article! One issue with having your own spec (and even worse the cost sheet) for your custom house in mid to low range, is you will quickly realize how builders are ripping you off, and apply far from common sense approach to their quoting, avoiding uncomfortable discussions and just consider you a nuance who needs to take it or leave it''. Being educated but having no building locence, We found very hard to get a proper tender in WA. The majority of market just eats it relying on a goodwill of a 'good old bloke builder'
Great post, thanks. I was owner builder for 100sqm extension to our house. Never again! Costs blew out, some shoddy trades, took 10 times as long as it would have taken a builder and I'm not sure how much I saved in the long run.