statistics of dynamics of house building project
TRANSCRIPT
Statistics of Dynamics of House Building Project
Introduction
House building industry is highly decentralised, where some builders build few low cost buildings for few peoples, where as some builders build buildings of high value or buildings for quite a good number of people. Market rate of interest is the major driving force behind demand for housing. Less the interest rate, more is the demand for housing, and vice versa. Supply is influenced, to a great extent by housing prices. If the housing price can beat the inflation rate, then investing in houses becomes attractive, and stock of houses increases. In the reverse case, house building is simply for the sake of shelter, and stock of houses dwindles. Supply is also influenced by variable cost, consisting of material and labour cost, which constitute about 85 to 90% of the sales price.
In this article, attempt has been made to understand the various dynamics of house building industry, their impact, and relative importance vis-a- vis cost structure, time lags in the whole building process, and pricing of houses.
Section 1. Stats
House building expenditure in 2013, and increase from 2012
According to the US Census Bureau of the Department of Commerce, construction spending during 2013 was estimated at a seasonally adjusted annual rate of $663.9 billion, which was 1% (+/-1%) above the revised estimate for November 2012 of $657.1 billion. Residential construction was estimated at a seasonally adjusted rate of $352.6 billion in December 2013, which was 2.6% (+/-1.3%) more than the revised November figure of $343.8 billion. Similarly non-residential construction value was estimated at seasonally adjusted rate of $311.3 billion, which was 0.7% (+/-1.0%) less than the revised figure of $313.4 billion for November.
Data published by the bureau show that the value of private construction in 2013 was $627.2 billion, which was 8.5% (+/-1.5%) more than $577.9 billion in 2012. Residential construction in 2013 was at $330.7 billion, which was 18% (+/-2.1%) more than the 2012 figure of $280.3 billion, and the value of non-residential construction in 2013 was $296.5 billion, which was .4% (+/-1.5%) below the value of 2012, which was $297.7 billion.
• In 2013 people of US spent $627.2 billion in house building, which was 8.5% increase from 2012.
• 65% on one unit, detached, 7.5% on co-operative or condos, and 22.5% on apartments.
• 81% on buildings with a garage, or carport for owner occupied housing units.
• 93% on buildings with a porch, deck, Balcony, or patio, for owner occupied housing units.
• 22% of the houses done on owners’ land, either the owner or the builder acting as general contractor, 78% of the houses built by contractors, on purchased land, and 80% of all houses were meant for sale.
Analysis of information and data obtained from secondary sources reveal the following:
House building expenditure in 2013, and increase from 2012
2013 % increase
Million dollars from 2012
House building type
Residential 330720 18
New single family 188828 27.9
New multi family 31983 43.9
Non residential 296475 -0.4
Table cont......
Private House Building Cost
Private House Building Cost
2013
% increase from 2012Non residential Million DollarsLodging 18873 28.7
Office 30647 9.6
Commercial 46941 8.8
Health care 29954 -2.6
Educational 16665 1.4
Religious 3422 -8.5
Public safety 129 6.6
Amusement and recreation 6134 6
Transportation 12445 9.4
Communication 15120 -12.7
Power 71187 -14.4
Sewage and waste disposal 417 -30.5
Water supply 696 66.9
Manufacturing 48635 6.1
Contd.....
Section 2. Cost
Single-family housing cost, and percentage wise break-up
The price index is deemed to measure changes over time in the sales
price of new single family homes which are the same in respect of
several important characteristics, like, floor area, geographic divisions,
location as regards to metropolitan area, number of fire places, bed
rooms, and bath rooms, parking facilities etc. The proportions of
houses of that type sold in 2005 has been taken as the weights for the
index.
The average cost of a single-family home was $324500 in 2013.
Percentage wise distribution
a. According to element of cost:
Construction cost: 62% of sales price.
Builder profit: 9%.
Finished lot cost: 19%
Overhead and general expenses: 4%
Financial cost: 1%.
Marketing cost: 1%.
Sales commission: 4%.
b. According to nature of cost:
Variable costs account for the significant portion of the total house building cost, and the entire material and almost the entire labour cost constitute the variable cost, which is about 80 to 90% of the total cost. Since the contractor sub contracts the labour job the whole of the labour cost becomes variable. Typically in construction business, there is nil indirect material cost and very insignificant indirect labour cost.
Material cost : 35% Labour cost : 55% Contractor profit : 9% Planning cost : 1%
Percentage increase in cost
Construction cost has increased by 2.7% as compared to 2012 Common labour cost has increased by 3.4% in comparison to
2012
Section3. Time
Time-lag in different phases of the house building process
In most of the house building projects, care is taken that no time is wasted between obtaining permit and starting construction. For those projects built on owners’ land, projects get started in the same month of obtaining permit, and in some cases, even prior to getting the permit. Most of such houses are meant for sale. On the other hand, for houses built to be rented, there is a slight delay of about one month before the construction starts. However the time between obtaining permit and completion varies from one survey division to another. According to the data released by Survey Of Construction (SOC), and published by National Association Of Home Builders (NAHB), the following are revealed:
• On an average a single-family house takes 110 weeks to be built-up.• On an average it takes 28 weeks from obtaining a permit and completing construction for a single-family house.• For single-family house, permit obtaining time is 2 weeks, and for large complexes the time is about 8 weeks on an average.• Time-to-plan lag is 68 weeks on an average, when weighted by size, and it is 112 weeks, when the project is weighted by construction cost. • Interior design time for a single-family house is 12 weeks on an average.• Only 5% of houses completed in 2013 remained unsold as on the 1st. Quarter of 2014.• As compared to 2012, there was no additional time lag between completion and sale.
Section 4. Problems.
Resulting in disruption in work schedule and over-budgeting
Maintaining the original schedule of construction is imperative from the cost-budget and completion deadline perspective. There are many types of delays that disrupt the construction schedule. Some delays can be prevented by proper planning of the project. However, there are some reasons which are beyond the control of the contractor. Such delay-time depends upon circumstances, and also managerial efficiency or inefficiency of the contractor. On an average projects are delayed by 3-6weeks. Analysis of available information reveals the following reasons:
Improper planning by contractor, e.g.., forgetting to engage subcontractor. Increase in waiting time to get permit. Waiting for city inspector to perform routine inspection, or red-flagging by inspector. Change of mind of customer, resulting in delay in ordering supplies. Shortage in number of workers. Unusual weather conditions, like rainy day, snow-filled day, windy day. Waiting for utility companies, like water, sewer, electricity, to complete their necessary work. Unforeseen political disturbances. Financial crunch on the part of the contractor. Newly emerged legal issues in relation to the subject property. Safety issues resulting in accident or unfortunate incidents during construction.
Another problem associated with house building project is that of over-budget. Almost 99% of the bank loans sanctioned for housing projects go over-budget. There are a number of reasons for which actual cost of the project goes over-budget, by 10-20%. Some of the commonly found reasons are enumerated below:
• Forgetting certain things, like landscaping, additional concrete, or simple upgrade.• Re-designing of facilities, like septic tanks, windows in garage door, casement windows instead of double-hung, etc.• Upgrading the base trim in the whole house.• Re-deciding to make the island bigger.
Resulting in disruption in work schedule and over-budgeting
Conclusion
The afore said write-up explains the dynamics of house building job, like, cost of the project, pricing of houses, time-lags in obtaining permit, planning, and construction, factors responsible for disruption of work-schedule, and over-budgeting, and demonstrates the inter-relation of the dynamics, and their impact on the housing market scenario.
Note: The following categories of private contraction not shown separately, highway & street and conservation & development.
References
1. http://www.census.gov/construction/nrc/lengthoftime.html
2. google census.gov
3. http://www.federalreserve.com
4. www.census.gov/programs-surveys/ahs
5. enr.construction.com/economics
6. www.nahb.org
7. HousingEconomics.com