Smaller homes cost more / by Josh Brincko

I’m always trying to figure out what makes construction expensive. I tend to design higher quality small projects. We know quality costs something extra, but smaller doesn’t necessarily make things cheaper though. Small projects have all the same amenities as large projects. For example, a 2 bed, 2 bath, 1000sf home has the same cost for plumbing as a 2 bed, 2 bath, 2000sf home.

Here’s an analogy. Imagine a 12oz can of soda sells for 50¢, and a 24oz can of soda sells for 90¢. Double the soda is a better value, and they actually make a BETTER profit on selling the bigger can of soda. Let’s say 12oz of soda costs 5¢ to create, the 12oz aluminum can costs 5¢ to create, and the pull tab (which has the highest concentration of aluminum) costs 5¢ to create. That’s a total of 15¢ of materials for a 35¢ profit. Profit is 70% (ignoring things like insurance, marketing, etc).

Let’s say 24oz of soda costs double at 10¢ to create, the 24oz aluminum can costs double at 10¢ to create, and the pull tab still costs the same 5¢ to create. That’s a total of 25¢ of materials for a 65¢ profit. Profit is 72% even though you are getting more soda for less money per ounce.

Buildings work very much the same way. When you proportion out the costs of required amenities throughout the square footage of the building, the bigger building is a better value. Items that are the same exact cost on big projects and small projects include things like: surveys, waterline connection, sewer connection, electrical connection, gas connection, driveway, engineering a 10’ beam costs the same as a 20’ beam, drawing a 100sf room costs the same as a 200sf room, mobilization costs for the builder and subcontractors, the sani-can rental, most tool and equipment rentals, etc.

You can see there’s a lot of items that have a fixed cost that is irrelevant to the size of the project. This makes the cost per square foot of small projects get higher while larger projects get lower. A $20,000 waterline connection fee from the city is a big deal for a $400,000 home but not such a big deal for a $4,000,000 home. You get the point? 

I’m sure you will do a good bit of research and find average square footage costs on the internet. These are often very deceiving because they are often based on the past, and construction costs continue to rise over time. Also, they are often based on other locations or averages of locations instead of a place like Seattle that is one of the most expensive places to build with difficult soil and seismic activity requiring expensive foundations. The low supply and high demand doesn’t help either. Lastly the cost per square foot model gets so far out of line when you are proportioning it over a small project (anything under 2000 sq ft). This is partially why remodeling is so expensive (not to mention all the cost associated with protecting an existing house while builders surgically work on it to make the old stuff and new stuff match). It is common for a simple home in Seattle to be built for over $350 per square foot. It is also common for a similar quality, but smaller home or addition with the same amenities to be built for over $600 per square foot or even over $1000 per square foot if the home is even smaller. It is helpful to bear this in mind when doing your preliminary planning.