What are you paying for?

By Marcia Luke

If it seems like the cost of housing is going up all the time, and so are the number of projects being built, one has to wonder where all the money is going? Just like anything else you buy, you want to know what you're paying for.

First and foremost, it's important to remember that home building isn't an easy job. Those who tackle it spend upwards of 16 to 30 weeks minimum on a build. At least 45 different skilled trades are required to complete the project, and it's crucial to find a price point that meets quality and consumer needs. Things like energy efficiency, state of the art plumbing, heating, cooling, and ventilation systems frequently fall within a builder's mandate. Competition for design and finishing has builders providing many different interior options as part of the package. All of this has to fall in line with building regulations, per its, inspections, and approvals. It requires a wealth of knowledge about the industry and keen management skills to complete your new home.

Most obviously, the rising cost of land means homes are going to be more expensive. The developer must finance the cost of the land, its warranty, and insure the mortgage policy. Next is the cost of demolishing any existing structures. Building permits have to be attained before construction can begin. And with a shortage of skilled trade workers, labour costs continue to rise. Similarly materials have risen 20 per cent in the last two years. Then factor in Development Cost Charges, these can encompass things like water, waste water, regional roads, police services, long term care, health, ambulance services, and growth studies. Inspections maintain that the formwork, sheathing, framing, insulation, and final result are all safe and sound. And finally there is a GST charge, which is sometimes included in the cost of your new home or condo and sometimes is atop the listed price.

However, what you pay can be broken down even further according to the actual building. Typically, labour takes up 55 per cent of the total building cost and materials take up 45 per cent. Local cost consultant, Pelican Woodcliff, provides a basic breakdown of builder costs for single-family homes, townhomes, and condominiums in this manner. For a single-family home the price of land is generally 28 per cent of total costs, hard costs (materials and equipment) 56 per cent, and soft costs (management, legal, financing, realty taxes, development/municipal/permit, consultants, miscellaneous) 16 per cent. The profit margin on houses run between $5,000 and $10,000 per home. For townhomes the land price is about 22 per cent, hard costs 51 per cent, and soft costs 27 per cent. With condominiums, land eats up a mere 11 per cent, hard costs 62 per cent, and soft costs 27 per cent. The profit margin for condominiums and condo townhomes runs from 8 to 10 per cent. Land is a lesser cost for condominiums because they are high-rise developments, while the hard costs are more than single-family homes due to the added materials needed for multiple units of living space. Land prices can fluctuate significantly depending on when the land was purchased and how long it takes for building to begin.

Sounds reasonable enough, but how do you know your builder is investing the necessary money towards each component of construction? That's where the National Building Code comes into play, setting guidelines for construction, to ensure that your new home is healthy, safe, and secure. The code is combined with quality craftsmanship and good design to ensure that your home is built well, which is why researching any prospective builder is key. Enforced at the municipal level, the National Building Code demands that building permits are issued, the builder's plans approved, and there be periodic inspections during construction to ensure the plan is being followed.

No one is saying it's an easy process but with a little bit of research, knowing how and where your money is going will do wonders when it comes to buying a new home.