Explaining the money pit: why is home remodeling so expensive?

I work as a residential architect here in Southwest Minneapolis, and so I’m constantly asked the question, “why is construction so expensive?”

You’ve heard the stories. A neighbor spent $200,000 adding a family room/master bedroom suite onto the back of a house they paid $120,000 for 10 years ago. Another neighbor spent $250,000 adding a second story onto the one-story house they paid less than $100,000 for. Even a project as simple as building a new garage can easily cost $40,000.

Why is construction so expensive?

Unfortunately, there’s no simple answer. We can, however, break construction costs down into material costs and labor costs, and examine each individually.

A standard rule of thumb in construction holds that a third of the cost of any project is materials and two-thirds is labor. That seems to be changing lately, as material costs hold steady but labor costs continue to rise.

Material prices used to be a tangled web of hidden and secret discounts that builders negotiated with their lumberyards. But those days are vanishing fast. Mega-retailers like Home Depot have standardized the price of construction materials across the country.

Material costs have held steady for the past decade. Yes, there have been upticks in the price of lumber (particularly cedar) as the Softwoods Agreement with Canada has fallen apart, and there have been supply-driven spikes in prices of scarce materials (plywood and oriented strand board and roofing shingles); however, on the whole, material costs have had downward pressures in the national marketplace.

The quality and price of materials that homeowners are choosing have gone up, however. Take appliances as an example. In a kitchen remodeling you can spend $5,000 on all your appliances, or you can select a Viking Stove, a Sub-Zero refrigerator, an Asko dishwasher and a Broan hood, and spend $20,000. You can select plastic laminate countertops or high-buck granite countertops. Not many homeowners, especially in Southwest Minneapolis, are selecting plastic laminate any more. People want their projects to look like the images in magazines. Expensive selections equal expensive projects.

But by far the biggest cost increases have come in labor. Minnesota is blessed with a large pool of talented tradespeople. A strong tradition of skilled carpentry and quality woodworking goes back to the state’s Scandinavian and German roots. Minnesota’s tradespeople take great pride in their work, and the overall quality of construction is far higher than what you’ll see in California, Florida or other Sunbelt states.

But local carpenters are paid well. Hourly rates for carpenters here in the Twin Cities (these are the rates they are billed on projects, not the amount they’re paid per hour) range from $35 to $55. In Florida, the rate is $15 to $35.

And then there’s the simple reality that too much work has been chasing too few contractors. In a time of economic expansion, when builders can pick and choose among potential projects, there is no downward pressure on prices. Builders, like any other entrepreneurs, will charge what the market can bear.

All of which makes Mayor R.T. Rybak’s push for affordable housing just as problematic as your ability to remodel your kitchen for $30,000.

Robert Gerloff, AIA, is the principal of Robert Gerloff Residential Architects in Linden Hills. He can be reached at rgerloff@residentialarchitects.com.