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“When Will Home Construction Costs Be Less Expensive?”: Understanding the Factors Behind High Home Building Costs in Kansas City and beyond.”

by jared_hokeley

Embarking on the journey of designing your dream home with Hoke Ley Architecture & Design is an exciting venture, but one that comes with a multitude of considerations, not the least of which is the cost of construction. Residential construction costs can be influenced by a myriad of factors, each playing a unique role in determining the final price tag of your dream home.

Forecasting construction costs can be a challenging endeavor for those looking to design and build a new home today. While inflation is slowly dropping and the cost of materials is showing signs of stabilizing, contractor bids continue to soar. The most common question that we field from potential clients of Hoke Ley is consistently, “When will home construction costs be less expensive in Kansas City and beyond?” In this comprehensive exploration, we delve into the details of residential construction costs, shedding light on the key factors that shape them and providing insights into when the cheapest time to build may be.

Factors Influencing Home Construction Costs

  • Economic Expansion and Increased Demand:

Many metropolitan centers, including Kansas City, have experienced robust economic growth, attracting businesses and residents alike. The resulting population influx has led to increased demand for housing, creating a competitive market for both existing homes and new constructions. The simple principle of supply and demand plays a significant role in driving up home building costs:

    1. High Demand for Skilled Labor: The demand for skilled construction labor has surged in response to the increased need for new homes. As a result, wages for skilled workers have risen, contributing to higher overall construction costs. While many clients are fixated on the high cost of materials, labor is the real driver, typically accounting for over 60% of the total construction cost.
    2. Material Scarcity and Cost: The increased demand for construction materials has, in some instances, led to shortages, driving up prices. Lumber, in particular, has seen significant price fluctuations, impacting the overall cost of building. While many materials have experienced relief from COVID-era price escalations, those costs are still significantly higher than three years ago, as the cost of materials has increased by an average of 19%. One projection estimates that by 2024, prices could be 25% higher than they would’ve been compared to a pre-2020 trajectory.
    3. Land Prices: With the growing population, the value of land in desirable locations has risen, adding another layer to the overall cost of new construction projects.
  • Supply Chain Disruptions:

The global supply chain disruptions witnessed in recent years have reverberated across industries, including construction. Kansas City has not been immune to the challenges posed by disruptions in the supply chain for building materials:

    1. Lumber Prices: The volatility in lumber prices has been a significant factor in the increased cost of home construction. From early 2020 to mid-2021, lumber prices experienced unprecedented spikes, impacting the budgets of builders and potential homeowners.
    2. Material Availability: Delays in the delivery of construction materials have become more common, leading to extended project timelines and increased holding costs for builders. Limited availability of materials also contributes to higher prices. While most supply chains have been relieved from the pandemic shortages, there are still long lead times for electrical equipment and persistent price increases for steel and concrete.
    3. Transportation Costs: Rising transportation costs, influenced by fuel prices and other logistical challenges, have further added to the overall expenses associated with obtaining and delivering construction materials.
  • Skilled Labor Shortages:

The construction industry in Kansas City, like many other regions, is grappling with a shortage of skilled labor. This shortage has implications for both the speed and cost of home construction projects:

    1. Shortage of Talent: The construction industry saw a huge number of workers leave the field during the pandemic and is currently challenged by an aging workforce. As those workers retire, the labor pool is expected to shrink even more. According to the trade group Associated Builders and Contractors, the construction industry’s workforce shortfall stands at more than half a million employees—meaning that 500,000 new workers could enter the market and the industry would still be operating at a deficit.
    2. Wage Inflation: The scarcity of skilled workers has led to increased competition among construction firms for qualified labor. As a result, wages for skilled trades have risen, contributing to higher overall labor costs.
    3. Project Timelines: The shortage of skilled labor can lead to delays in construction timelines, affecting project schedules and potentially increasing costs associated with project management and coordination.
    4. Training and Recruitment Challenges: Encouraging new talent to enter the construction industry and providing adequate training programs are essential steps in addressing labor shortages. However, these initiatives may take time to yield results.
  • Interest Rates and Financing:

One of the primary considerations when contemplating home construction is the prevailing interest rates. As of November 7, 2023, interest rates are 7.92% for a 30-year fixed rate, a critical factor influencing the overall cost of financing your new home. Here’s how interest rates impact your decision:

    1. High Interest Rates: Interest rates have steadily increased since July 2021 in the hopes of slowing inflation, with 30-year mortgage rates rising from 2.65% to nearly 8% at the end of this summer. This amounts to a difference of $662 a month for a $200,000 home loan.
    2. Predicting Rate Movements: While current rates are not favorable, it’s essential to consider future projections. Consult with financial experts and analyze economic forecasts to gauge whether rates are expected to remain stable, increase or decrease in the coming months or years.


Forecasting Home Construction Costs

Now that there’s a basic understanding of the primary factors that are causing the cost of construction and contractors’ bids to remain high, let’s explore if adjustments to any of the factors will result in a downward shift in residential construction costs. (While we’re not economists at Hoke Ley, we do have a sense of what’s to come based on our position within the design and construction industry.) As we move into 2024, supply chain disruptions should continue to see more relief, leading to greater material availability. The result should be a stabilization of material costs that have been impacted by supply challenges over the past three years. Material costs shouldn’t be expected to drop substantially, though, merely that the rate of increase should become more closely aligned with the inflation rate. Regarding inflation, rates are forecasted to continue a downward trajectory through 2028, and the expectation is that this will be coupled with a decrease in home mortgage interest rates. Once again, we’re not talking about a return to pre-pandemic levels, but there should be relief.  However, the skilled labor shortages and the increases in labor rates will continue to place the biggest stress on the construction industry, pushing construction costs higher for the foreseeable future.

What does all of this mean for someone who is considering designing and building a new home and is asking the question, “When will it be cheaper to build?” Based on the information that we have at our disposal, the answer that we provide at Hoke Ley to potential clients: “Now”. Today is the cheapest time to build, and right now is the best time to begin the design of a new home.

Deciding to build amidst a period of climbing residential construction costs doesn’t mean that a client has no means to control or positively affect costs. Navigating the complex terrain of residential construction costs requires strategic planning and a proactive approach, and Hoke Ley is here to serve as your guide and advocate throughout the entire process to ensure that your design and financial goals are met.

Strategies for Managing Home Construction Costs

Here are some key strategies to manage and optimize costs:

  1. Detailed Planning and Budgeting: The Foundation of Financial Success

Thorough planning and budgeting are essential to identify potential cost drivers and establish a realistic budget. Working with experienced professionals, such as the architects at Hoke Ley, can provide valuable insights into potential costs and help clients make informed decisions.

Construction pricing exercises by trusted contractors are performed after each phase of the Hoke Ley design process. These proactive steps ensure that clients are aware of potential construction costs as the project progresses and allow informed design changes to be enacted well before construction begins.

  1. Competitive Bidding: Exploring Cost-Effective Options

Obtaining bids from multiple contractors allows clients to compare costs and select a contractor whose bid aligns with their budget and expectations. However, it’s crucial to consider not only the cost but also the contractor’s reputation, experience, and reliability.

  1. Value Engineering: Maximizing Efficiency Without Sacrificing Quality

Value engineering involves optimizing the design and construction process to maximize efficiency and minimize costs without compromising quality. This approach requires collaboration between clients, architects, and contractors to identify cost-effective solutions at every stage of the project.

  1. Flexibility in Design: Adapting to Budget Realities

Flexibility in design can be a powerful tool for managing costs. Being open to alternative materials or design modifications that align with budget constraints can help clients achieve their vision without exceeding financial limits.

  1. Contingency Planning: Preparing for the Unexpected

Construction projects often encounter unforeseen challenges that can impact costs. Building a contingency fund of 5-10% into the budget allows clients to address unexpected expenses without derailing the entire project.


High Home Construction Costs are Manageable with the Right Team

Building a home is a significant investment, and balancing dreams with financial realities is key to not only building a beautiful home but also ensuring a sound financial foundation for the future. The question of when to build to protect the financial future is one that must be carefully addressed. While residential construction costs have been inflated for the past three years, market factors indicate that there is little relief in sight and that costs will continue to rise for the foreseeable future, making “now” the cheapest time to build. Implementing strategic cost management practices and constructing a knowledgeable team of professionals such as Hoke Ley to guide the project from start to finish will allow clients to embark on their design and construction journey with confidence.

We believe that today is the cheapest time to build, and right now is the best time to begin the design of a new home. Considering that the design and permitting process may take 6-12 months, proactively embarking on the journey of designing a dream home today puts a client in the position to take advantage of potentially favorable market conditions when construction is actually ready to commence.  If you’ve been considering designing a new home or home addition, take a proactive “design now, build now” approach and contact Hoke Ley to begin this endeavor.

Looking for an architect in Kansas City?

As a design studio based in Kansas City and Lawrence, we offer architecture, interior design, and graphic design services. Hoke Ley has experience in several areas:

  • Residential
  • Commercial
  • Multi-family
  • Equestrian

Regardless of the nature of your project, we’ve got the expertise to bring your dream to life. The architects at Hoke Ley are dedicated to not only designing beautiful, highly custom buildings; we’re dedicated to your vision; your lifestyle; your goals.

Our award-winning architecture is truly an outgrowth of wanting to serve our clients to the best of our ability. We create beautiful spaces for individuals to enjoy, design enriching environments to enhance communities, and transform the dreams of our clients into built realities.

We consider it a privilege to guide you through the process of creating a functional and beautiful space for clients from all over the Kansas City region. Reach out to us about starting on your project. We can’t wait to work with you!