Can your Build be as affordable and tasty as Nanna's cupcakes..?

Covid was a strange time for many reasons. I remember when we had multiple jobs on the ground when the Virus hit. Two of these builds needed us to commit to the windows and doors order and confirmation so we can keep to program, then Bang… what was next? Apocalypse? wake up in a sweat and stumble to the loo with a full bladder? Or just a storm in a teacup? We won’t debate on which of the above best fits, however one thing was for certain, it was real. We did commit to both projects’ windows and doors, meaning that we were neck deep in being to debt of these orders, until we could reach “Lock up” stage on both of these jobs, whenever that might be?

In the end it was a slow drag of lock downs, not working, some trades not returning when they were allowed, trades onsite were far less productive than usual for numerous reasons, it was a whirlwind of a 12-month period. The biggest thing that came from this period in the construction industry was a hefty price surge on EVERYTHING. Concrete, steel, timber and everyone’s wage went up. There were extended periods when I was paying legitimate labourers more than I was taking home myself as the Builder- you know, the guy that holds all the risk. During this period the Builders were holding an absurd amount of risk, and unfortunately, some couldn’t carry it through, and had to close up.

New Builds and renovations were mainly Fixed Price contracts; I know all mine were. It makes sense, the lender (and/or client) wants as much certainty as they can that their lending the correct amount of cash to achieve the product that this capital needs to balance their books against. Clients didn’t want to pay anymore than their signed fixed price contract, materials more than doubled in some instances, and trades and contractors felt the need to follow suit and jacked their rates too. It felt like a really extended bad dream, but it was the new reality at the time.  It became a very unbalanced book for the builders where they had a job on the ground, the price was fixed, the materials required to complete the job surged, the contractors required to complete the project all increased their quotes and required new Purchase Orders, and the Builder had to just ‘Make it work’…. Coooool!

Years passed, and although we are through Covid, the aftermath didn’t see much regulation or re baselining of prices of materials and trades, they all just seemed to surge drastically at the time, then plateau for a while, and are now on the ever increase again. The Ol’ Money tree world. The Bermuda Triangle analogy of building and construction still and always will remain, the three point to the prism; 1) Cheap, 2) Quality, 3) Fast. Only 2 of the three can be achieved, all three together will never be seen. So how can individuals, families, couples afford to have a nice new or renovated home these days? I mean they all want the bells and whistles, they all want Instagram worthy everything, but for most, its all unaffordable.

If I think about this family scenario from a high level;

-          Dad works fulltime, and is on $180K,

-          Mum works part time and is on $80K,

-          they have 2 kids, one at high school and one at primary.

-          They have no credit cards and no other liabilities and own their cars outright.

-          They were fortunate to buy a “renovator” home 5 years ago for $750K, and they still owe $400K on it, owing nearly half of the original purchase value, and the home has now been valued at $1.5 Million as is.

-          They want to finally renovate their home, however what they want/require, is best to knock down and start again.

-          They have done the ‘Speccy’ builder circuit over the last 6 months, visited many show suburbs, communities and homes and nothing really fits their ”wants/needs”, which is a very common path that many new clients are at.

-          They decide they are going to engage an architect and send the plans to quote/tender. The plans, BA, all other associated read tape cost them $40K which they pay for with their savings,

-          They have plans and BA for beautifully designed and bespoke home, that they worked with the Architect to keep it as cost effective as possible,

-          They send the plans to three Builders to Quote and all the prices come back, one builder is a touch over $2 Million, the other two are similar at between $1.5 and $1.6 Million.

From a high level, if they chose one of the less expensive ones and allowed $1.6 Million for the build, then added the owing $400K from the original loan, they now need a loan of $2 Million dollars…… Not delving too deep into rates and terms as that’s not my expertise or sentiment of this conversation, however a standard term of 25-30 years and standard rate of 4-5 % the yearly repayments on this loan would be around the $120k. With standard monthly expenses for a family like themselves, they can only borrow up to $1.7 Million. There is a shortfall of $300K. Now this couple, they earn quite a good income for the family between them, and they feel they are priced out of the market for a home that they have worked extremely hard to have.

They were fortunate and only owe $400K on a home in a very nice area as they got into the market early, many new couples and families are facing this reality and also have to purchase the initial property at current full market rate, or find a nice new home that ticks all the boxes they want/need.

This is very tough; people will always want nice things for their money. Especially if they work so damn hard for their money, giving up weekends of their kid’s sport, leisure and nice activities and outings with their families to sneak in some overtime or an extra day of work. This frustration then trickles over into other aspects of their lives and could affect their family lives further by closing off, or working greater hours and more days and weekends to try and bring the ends of the rope closer. I’ve seen this happen and its pretty crook.

What can be done? Materials cost what they cost, we as Builders get as best accounts that we can spread across as many suppliers so that we can get the best price on orders. We can continually chase the cheapest trades, however this impacts on quality of work, and the final product which is far worse. So, we land on trades and form really great working relationships with so that we know that we are getting the best that this money that we pay them can provide to the build. We schedule the jobs with military procession, allowing minimal time frames, give each of the trades all the clear time and space they need to complete their work effectively, and we minimise down time and preliminaries onsite so we can keep this to a minimum also which greatly effects the final price of the build. This works well, however over the last couple of years, with the help from the clients, we have gone further as these measures weren’t quite enough.

Through the experience of Covid, and with the relationships we have with all of our trades, we have experimented with a reverse style approach. Initially we quoted and tendered on Builds, and were in discussions with the clients as we were the Builder they were keen to Build with, however the price still wasn’t in the sweet spot for them. In the example used above, our quote may have been $1.5-$1.6 million, however the client only had capacity for $1.3 Million. Now this is far too low for our company to build for, as for us it would have been at cost price which isn’t good for us or the client. You never want the builder to build for cost as you may be at risk of short cuts, time blow outs, variations or anything else to settle the Bermuda triangle. For all of these situations we usually exchanged pleasantries one more time and bid “best of luck” and “reach out if we can help you in any other way or in future projects or Builds”.

However we were faced with this with one of our repeat clients, and they had obviously been thinking about this prior. We then tried a “working backwards” approach. Not a new phenomenal, ground breaking system I’m sure, however most times this was flaunted with us previously it never worked. Now I’m not sure if Covid has opened a new channel in our minds and has expanded our expertise at all, but in this situation, it worked a treat. Think of it like a recipe for Nannas cupcakes- Butter, cup sugar, 1 egg, so on and so on. This makes 12 cupcakes. What if I only wanted 10 cupcakes, or nine cupcakes, or heaven forbid, 20 cupcakes? We would pro rata these ingredients out to exact proportions and we would then expect them to taste the same, yes?

Now once again, this is all from a high level, and sure this isn’t fool proof, and you do need clients who are motivated to work together in this approach. A new Build will have approximately 40 Line items of differing scopes of work that make up the Build. From carpentry, electrical, plumbing, to concrete, structural steel, cranage and site amenities and everything else in between. New Builds are different to large renovations as with renovations there are a lot of costs to move backwards in work with demo and de-construction and inspections, however with new Builds there is a “recipe” and the “ingredient” portions can follow an equation with a widened tolerance.

We found out that it is possible to input the amount of cupcakes the client wants (cost of Build) then pro rata out the ingredient amounts (cost allowed for each scope to keep to budget) Unlike Nanna’s cupcakes, each clients taste vary, and that’s ok. They might want them sweeter so we can add more sugar, but if we do that, then we need to borrow the volume of this extra sugar from the Milk, or the eggs and so on. We found it not only effective in keeping to budget for the clients, in most cases they actually enjoyed the building process more and were much more active in the final design and finishes of the Build.

Most times this can be done without compromising much at all, the size of build can remain, all the “Must haves” remain, however the floor coverings can be altered, the pool orientation can be changed and the fixtures and fittings, lighting, and cabinetry style can be altered. Or if you are robust in your approach, the floor space and size is something that too can drastically reduce cost. Although most builders, including us, don’t use m2 as a tool for calculating cost, minimising size no doubt brings the cost down, it’s just not the only way to do this. Over the last few years, our Nannas cupcakes recipe approach has worked extremely well for our clients and also with my own home construction.

Does this transfer to every New Build, it most certainly doesn’t, and on most occasions the build price and the clients budget fall in line with each other, giving great testament to the Design process between Architect and Client. However sometimes the client just seems to have more expensive taste than what their pockets carry.

Can this be done for a $2 Million build if the client only has $1 Million to spend? Unfortunately, not. Not if you don’t want to take a butcher’s knife to the plans. However, it can certainly be done on a smaller reduction of cost scale as mentioned. A $1.55 Million Home could very closely be built for $1.3 Million, just like a $1.3 Million could be built for $1.1 Million, or a $2 Million for $1.7 Million. All scalable to a Build recipe that you can work with your clients on. Quality is maintained throughout and relationships are kept without time blowouts.

The added bonus we have also found is that clients move into their new homes that they have surgically helped with the blueprint. They don’t have to work the extra Saturdays and months of Sundays or give up the family holidays for a few years. They can go to their son’s soccer or footy games and Daughter’s netball and dancing concert. The kids can have a new pair of sneakers most seasons, and Mum and Dad can go on more Date nights. Win, Win, WIN.