The 'Cheapest Price' & the Myth of the 'Square Metre Rate'

When first meeting a prospective client one of the first questions that is often asked is “ How much a square metre will you charge to build our new house”?

The square metre (m2) rate is a popular term used by group home building companies and many other builders who have a range of standard plans that have either been built before or have already been priced so they can calculate the finished house build square metre rate based on the floor area.

Example :    A house has a floor area of 220m2 and has been priced to cost $2000 per m2.
220m2 x $2000 per m2 = $ 440’000 build cost.

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The m2 rate will vary based on many factors such as site conditions, location, materials, fit-out selections etc to name a few.  For example when you go to a store to buy anything that is sold by the square metre (for example carpet, tiles, vinyl, timber flooring to name a few) there will be a huge variation in price based depending on the end market - budget, mid-range or high-end.  

Another factor is that every building company has their own set of fixed and variable expenses, pricing processes, preferred suppliers and sub-contractors and each Builder is an individual with their own set of priorities.  This is why no two building companies/independent builder will end up with the same or even a similar price.  This is why the ‘square metre rate’ is a myth because it attempts to give a sense that pricing is standardised across the industry somehow - but for the reasons stated above and below, it isn’t.  

Yet another factor to consider is economy of scale, a small house still has a lot of fixed costs that
make the m2 rate higher when divided by the floor area.  As the floor area increases the square metre rate tends to decrease.

When building Architectural houses designed to a specific client brief that most often require
building on hill or challenging sites, the only true way to establish the build square metre rate is to fully price the final consent plans to calculate the total build cost, divide this figure by the floor area to reveal the true m2 rate.

It is not uncommon for this type of build to average $4000 per m2 and this figure can increase
much higher based on the clients final choose of materials, fit out and internal decorations.
In todays building market it is still possible to build a house under $2000 m2 as long as it is built
on a flat site with standard materials and fitting. This figure can also be reduce based on an owner
build and their level of involvement in the construction process.

Undertaking a project based solely on price or ‘square metre rate’ alone also attracts the most risk.  This is because established building companies/independent builders who have been in the industry a long time have proven pricing systems and financial solvency that has allowed them to trade successfully over the long term.  Whereas, companies/independent builders operating at ‘cheapest price’ generally have not been in the industry for very long, or potentially are trying to ‘buy’ work to continue to stay in business.  Obviously, this is not a sustainable business model which is borne out by statistics which show that “half of all construction firms will have closed within 4 years, and three quarters within 10 years” (1).  If this was to happen to you during your build, it will cost you a lot more in money and stress. 

The old saying “ you get what you pay for “ is true of new home building as the build quality will
still be enjoyed long after the cost is forgotten.



We have written a Guide for you detailing how you can avoid many of the pitfalls during the earliest part of the build process possibly saving you wasted time, energy and money.   You can access this here :   Salter Builders Guide


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Trevor Salter
Licensed Building Practitioner
Registered Master Builder 
Phone :  NZ (0064) 021 229 6222
Email :   trevor@salterbuilders.co.nz
Facebook :  Salter Builders Limited
You Tube :   Salter Builders You Tube 
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References:

(1)    The Building Guide, Canterbury West Coast 2017 2nd Edition.  (This guide quoted from Statistics New Zealand figures).

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