Often we are asked if a £/m2 rate can be used to predict the construction cost of a house – to get a good idea of what future costs will be. In theory, yes, but in reality, the answer is a very firm no. Today, we’re looking at this in more detail.
What is a £/m2 rate?
A £/m2 rate is the cost of an item divided by the area – e.g. a carpet which costs £1,000 and covers a 100m2 area has a rate of £10/m2.
Whilst this simple example appears to quickly illuminate a rate, the use of such a method to provide a ball-park construction project costs is generally unreliable. Let us explain further – and this time we will use a house as a hypothetical example. If a house was built, say last year, and the costs were exactly £200,000 and the size of the house was exactly 100m2, we could say that the costs were £2,000m2. Or could we?
Measuring the size of the house. (The devil is in the detail).
First of all, there are different ways a house can be measured, so even this simple example is problematic. If it is 200m2 – are we measuring the gross external area sometimes known as the external envelope, or the gross internal floor area (GIFA), measured corner to corner internally or are we talking about the net internal floor area (NIFA), which excludes partitions and part of the area under a stair?
Whilst this might sound unimportant, it is significant. Depending on the design of the house – this could equate to 5 to 10% of the area, therefore, straightaway, the build cost is out by 5 to 10%, either way. It is pretty easy to find yourself starting to realise that establishing a direct comparison is difficult to achieve in practice.
Other points to consider when evaluating construction costs:
There are significant areas of uncertainty in establishing project costs. Here are some further questions to ask yourself:
- Where was the work undertaken and how does this relate to a future project? Large fluctuations can occur for the same item fitted or house constructed in one location over another location.
- When was the work undertaken and how does this relate to a future project? Again, large fluctuations can occur for the same item fitted or house constructed at some point in the past versus some point in the future.
- If comparing between products or companies, are you comparing like for like – apples versus apples or apples versus oranges?
- Have all the sums been included – including legal and professional fees, etc?
- Do the sums include, labour, transport and VAT?
- If sums include VAT, are these recoverable as a new build cost and has the net or gross VAT number been included in the cost?
What are the main cost drivers in construction?
Generally speaking, downgrading or upgrading the specification of a kitchen isn’t going to be where the big costs are gained or lost. Yes, of course, it will make a difference but there are other aspects that will have a much greater impact. Let’s examine these further.
Incomplete design and specification: The design process of obtaining planning permission and building warrant will take care of a lot of the design and specification – but there are aspects that aren’t a requirement of planning and warrant that will need to be clarified. Before you go into contract with a contractor, you will want to have undertaken a competitive tender exercise (see below) so all final design aspects should have been completed and detailed beforehand.
Construction Hot Spots: This is about supply and demand. If you are looking to build where there are a limited number of contractors and lots of people wanting to build – then market forces will dictate that costs will be higher than if the situation was the opposite. Location and proximity to available trades who will price the project competitively are also vitally important. The upside of building in a popular location is that the market resale value will be attractive.
Competitive Tenders: Another really important aspect is to do with setting up your project so that you can obtain suitable contractors – at competitive prices. All too often, self-builders inadvertently find themselves boxed in and dealing with one contractor, in false anticipation that this will lead to a better outcome. This is generally a myth. Take a step back and ensure that you have all design, drawing and specification works are ready to send to suitable contractors for pricing.
For the avoidance of doubt, Neat Living provides a range of services for self-builders – from design to planning and warrant. We can also prepare Budget Cost Plans and Tender Services.
Three tips when thinking about costs.
In summary, our top three tips to do with managing costs are as follows:
- The £/m2 rate fallacy: In a nutshell, trying to predict your future construction costs based on a different project, previous and therefore out of date costs in order to establish future m2 rates can not provide the cost surety that is required when planning a future project. You may come across “m2 calculators” and these should be avoided – for all of the reasons given above – and more.
- Always seek clarification and professional input: It is always important to clarify what is included or excluded from costs. Having a Budget Cost Plan prepared for you and undertaking a competitive tendering exercise is the best way to go. Don’t be afraid to ask “stupid” questions – it’s your money after all.
- Be objective and logical: Finally, let’s imagine you have finally built your house, you’ve moved and put the kettle on for the first time. Of course, you can now tally up all of your costs, and measure the house size and arrive at a m2 rate. No argument – but trying to apply those same costs to a different project, in a different location next year would not be a reliable way for someone else to make decisions about their project – so why would you do the same?