Design Considerations / Cost & Budget / Setting the budget
Setting a budget
There are three ways to arrive at a budget for a new house or a major renovation. Two of them are common, and both tend to end with a design that costs more than anyone planned to spend. The third starts from the money you actually have and works inward. It's the one I use.
Design ConsiderationsCost & BudgetAt a glance
Start with the most you're prepared to spend. Take out everything that isn't the building, lock in the qualities you won't give up, and let what's left set the size and the design. Then size, quality and complexity can be balanced against a known figure, rather than discovered at tender.
- Wish list first: list everything you want, design it, then price it. The price arrives last, usually over budget.
- Base rate up: start from the cheapest rate per square metre and add upgrades until the money runs out. The base rate leaves out too much, and each addition looks small on its own.
- Total down: start with the total, take out demolition, fees, approvals, external works, fit-out and contingency, and what's left is the construction budget.
- Set your non-negotiables, such as double glazing or a quality of kitchen, before deciding the size.
- Three things together set the price of the building: size, quality of inclusions and complexity of design. With the budget fixed, more of one means less of another.
- Bringing a builder in early helps test the numbers while the design can still change.
Three waysHow budgets usually get set
| Method | How it works | Where it goes wrong |
|---|---|---|
| Wish list first | List everything you want, design it all, then get it priced | The price is the last thing anyone learns. If it's over, the choice is redesign or cuts at tender. |
| Base rate up | Start from the lowest rate per square metre and add upgrades until the money runs out | The base rate leaves out the site, fees and outside works, and each upgrade looks small on its own |
| Total down | Start with the most you'll spend, take out everything that isn't the building, and see what's left | It takes discipline at the start, but the design is matched to the money from day one |
Wish list firstDesign it, then price it
This is the most natural way to start. You collect everything you want, such as the number of bedrooms, a second living room, a butler's pantry, a studio, big glass doors to the garden and a raked ceiling. The design is drawn to include all of it. Then it goes to a builder for a price.
The trouble is the order. The price is the first time anyone learns what the brief costs, and by then the design is finished and the fees for it are spent. If the price is over budget, and it usually is, there are only two ways out. You can redesign, which costs time and fees, or you can cut quality at tender, which often means losing exactly the things that would have made the house good to live in: the better windows, the insulation, the finishes that last.
Base rate upStart cheap and add
The second approach starts with the lowest rate per square metre anyone will quote, multiplies it by the area you want, and then adds things until the money runs out: double glazing, a driveway, a more interesting design, better finishes, a bigger kitchen.
It feels careful, but the base rate is a floor that real houses rarely sit on. It usually assumes a flat block, a simple shape, standard inclusions and nothing outside the walls. It leaves out the site works, fees, approvals, connections, landscaping and fit-out, which together are a large part of the project.
The additions also mislead. Each one looks small on its own, and each is priced as if nothing else changed. In practice they compound. A more complex design costs more to build in every trade, not just in one line item.
Total downStart with what you have
This is the method I use, because it ties the design to the money from the first sketch.
- Set the total. Decide the most you're prepared to spend on the whole project, including GST. This includes all the things in the next steps, not just the house.
- Take out everything that isn't the building. That means demolition or knockdown if there's an existing house, design and consultant fees, approvals and charges, service connections, the driveway, fencing and landscaping, window coverings and other fit-out, a contingency, and finance and holding costs.
- What's left is the construction budget. This is the figure the house itself has to be built for.
- Set the non-negotiables. Within that budget, decide what you won't give up. It might be double glazing, insulation beyond the minimum, a certain standard of kitchen or bathroom, step-free access or an all-electric fit-out. These fix the level of quality.
- Work out the size. For that quality and a given level of complexity, a rough rate per square metre gives the floor area the budget will build.
- Test the brief against it. If the rooms you want don't fit in that area, change the brief now. Fewer rooms, smaller rooms or a simpler form, not the non-negotiables.
Here is how that works in proportions, for a knockdown and rebuild:
| From a total of 100 | Share |
|---|---|
| Demolition and site clearing | 4 |
| Design, consultant and approval fees | 5 |
| Driveway, fencing and landscaping | 10 |
| Window coverings and other fit-out | 2 |
| Contingency | 5 |
| Left for construction | 74 |
Illustration only. Every project, site and household divides the total differently.
The 74 is the number the design has to meet. The non-negotiables set the quality within it, and the quality and complexity set the rate per square metre. The size follows from those.
Bringing a builder in early
I've had the privilege of working with a lot of good builders over the decades. I know what things cost, or should cost, and I do enough work to keep a finger on the pulse as prices move. But the prices I give are indicative. I can't build the house for them. Only a builder can commit to a price, which is why I like to bring one in early, alongside the design.
At the start, the builder's role is to check the numbers: pricing options as they come up, pointing out what will be expensive on your particular site, and suggesting cheaper ways to get the same result. As the design develops and more of it is defined, the price firms up. Once the design is settled, the builder is locked in on a price they've been testing all along. You give up some of the price competition of a full tender, but you avoid the much larger cost of redesigning a house that came in over budget.
The three leversSize, quality and complexity
Once the construction budget is fixed, three things together set what it will buy:
- Size. The floor area. It's the biggest lever, because every square metre has to be built, heated, cooled and maintained.
- Quality of inclusions. The windows, insulation, kitchen, bathrooms, floors, fittings and finishes.
- Complexity of design. The shape of the plan, the roof, changes of level, large openings and structure, and how hard the site is to build on.
With the budget held, the three trade against each other. A larger house means simpler design or plainer finishes. Better windows and a better kitchen mean a smaller or simpler house. An elaborate form means less floor area or fewer upgrades. There's no way around this, only a choice about which matters most to you.
That choice is personal, and it's the most useful conversation to have at the start of a project. A household that cares most about light and performance might choose a smaller, simple house with excellent windows and insulation. Another might want space above all, and accept a plain form and standard finishes to get it. Both are good answers, as long as they're made on purpose and against a real number.
Applying it locallyCanberra and New South Wales
Canberra. Knockdown and rebuild is common in older suburbs. Allow for demolition, and for asbestos removal if the house was built before about 1990, before you work out the construction budget. If the project adds a dwelling or otherwise changes the lease, find out early whether a lease variation charge applies, because it comes out of the same total.
New South Wales. Council contributions for new dwellings, and BASIX commitments, both need to come out of the total before the construction budget is set.
Regional areas. Rates per square metre are often higher outside the main centres, because of travel, fewer builders and longer programmes. Use local figures, not city ones, when working out the size.