What a house really costs

Two numbersBuild cost and project cost

When people talk about what a house costs, they usually mean the builder's price: the figure in the building contract. That's the build cost. What you actually spend to move in is the project cost, which includes everything else needed to get from a block of land, or an existing house, to a finished home.

The gap between the two is where budgets go wrong. A household that sets aside exactly the builder's price runs out of money for the driveway, the fence, the blinds and the garden, often at the point when the loan is fully drawn and there's nothing left to borrow.

So set one figure early: the total you can spend, including everything below. Then work backwards to what's left for construction. That number, not the total, is the one the design has to meet.

The whole budgetWhat sits outside the builder's price

A typical project budget for a new house has these parts:

As a rough guide, construction is often around three-quarters of the total, and everything else makes up the remaining quarter. On a difficult site, a renovation or a project with major approval charges, the share outside the contract can be much larger.

Professional fees. Fees depend on the scope of the work and how much of the service you need. Many architects charge a percentage of the construction cost, and include administering the building contract. I don't. I focus on design, documentation and approvals, and work alongside the builder, who builds under a standard industry contract, so my fees aren't tied to the construction cost. Other consultants, such as the engineer, surveyor and certifier, add a few per cent more.

Contingency. For a new house on a straightforward site, hold back about 5% to 10% of the construction cost. For a renovation, hold back 10% to 20%, because no one knows what's behind the walls, under the floor or in the roof until they're opened.

GST. Builders' prices for homes normally include GST. Some fee proposals and supplier quotes don't. When comparing figures, check that each one is stated the same way.

Per square metreWhy the rate misleads

The cost per square metre is the most quoted number in housing and one of the least useful.

• Small houses cost more per square metre. The kitchen, bathrooms, laundry, approvals and connections cost much the same whatever the size of the house. In a small house they're spread over fewer square metres, so the rate goes up even though the total goes down.
• The rate usually leaves things out. Most quoted rates cover the building only. Site costs, external works, fees and fit-out sit outside it, which is often a quarter of the project.
• What counts as a square metre varies. Some rates include the garage, verandahs and alfresco areas at full value. Others count only the living area. Two rates can describe the same house very differently.
• Quality isn't in the rate. A rate says nothing about the windows, insulation, finishes or fittings it assumes.

Compare total project costs, for a defined scope, on your site. That's the only comparison that means anything.

Where the money goesWhat drives the cost

Most of the cost of a house is fixed by decisions made early, long before anyone signs a contract.

• Size comes first. Every square metre you don't build saves its construction, and also its heating, cooling, cleaning and maintenance for the life of the house.
• Complexity comes next. Corners, changes of level, roof junctions and large openings all add cost. A simple, compact form costs less to build and performs better.
• Wet areas and kitchens are the most expensive rooms per square metre. Each extra bathroom adds noticeably to the cost.
• The site can add as much as any design decision: slope, rock, poor soil, bushfire risk, access and existing trees all show up in the price.
• Finishes and fittings matter, but they're easier to adjust later than the size and shape of the house.

The order of decisionsDesign to the budget from day one

The cheapest moment to save money is the brief. A room that never makes it into the brief costs nothing to remove. A room removed at tender costs redesign fees and time. A room removed during construction may cost more than building it.

I prefer to bring a builder in early, working alongside the design, rather than designing in isolation and discovering the price at tender. A builder's advice on cost, buildability and the constraints of the site, given while the design is still moving, keeps the drawings and the budget in step. It's far cheaper than redesigning a finished scheme that came in over budget.

Set the total budget first, alongside the brief. Check the design against it at each stage: a rough estimate at concept, a more detailed one as the design develops, and a full pricing once the drawings and specifications are complete. If the numbers drift, change the design while it's still on paper, rather than cutting quality at the end.