Curious Minds… Why is home renovation so damn expensive?
Near the middle of last year, my wife and I decided to renovate our home. Our family is getting bigger and we have a small home. Seventeen hundred square feet for 5; time to add a little bit more space. The good news, we have a parcel that will accommodate extending out the back of the house. All said and done, our little home could add 900 square feet.
Worked with a wonderful architect to figure out how we could maximize this new space and have something wonderful. Participated in a Plat Survey, because if you are doing something big, there will always be ways people figure out how to get a piece of the pie. Sure city, the parcel of land has been the same for 100+ years, but let’s get someone out to measure it again.
Get a few bids from general contractors. Time for the big reveal… estimate drum roll….
500 thousand dollars. WTH…
I mean, WTH!
Let’s shine a little perspective on this. This house was built for $2,000.00 in 1908. Finished Square footage was about 1400 square feet, so roughly $1.43 per square foot. 100 years later, the square foot price was $218.00. 12 years later, the going rate for the renovation is $546.45 per square foot.
How could this be?! Why would something that was back of napkin estimated by someone “in the industry” at $273.22 a square foot double when it came time to bid?
Oh, what a rabbit role this will lead us down…
Material Costs costs going up?
Image we have a widget. A widget has Y cost in materials and costs X to make. Take a solar panels for example. Solar panels have some pretty neat technology and require all sorts of commodities and some form of skilled labor to build.
When solar panels came out their technology was complicated, their components expensive and there were few people who were trained to build them; thus solar was expensive. Years later the technology is better, their components are less expensive and there are more skilled works who can build and install them. Prices have plummeted for solar. Makes sense.
Now, let’s discuss wood. Wood comes from trees. Trees are less complex than solar panels. The chances of me, myself or I being able to plant a tree from a seed and grow said tree are much better than my chances of building a solar panel from scratch. Take my written word for it.
Trees get processed into wood and then wood is used to build much of the structure of a home.
Trees come from forests. Naturally we are all thinking, as the amount of forests goes down, the supply of trees goes down. Ergo tree costs are going to go up. That would be true except referring back to earlier, we have people, like myself, who aren’t quite capable of building a solar panel but who can plant trees. In fact, over the last 6 decades, the US Forest Services and private industry have gotten really good at managing forest inventory (trees). So good that the American forest inventory has stabilized around 823 million acres (about one third of the U.S.’ landscape).
So, no supply problem. In fact, while demand has increased over the past sixty years, forest supply has kept pace without reducing the available acreage.
Yet, since April of 2020, lumber prices have INCREASED more than 200 percent. Why you ask?
Pandemics are bad. The Covid-19 pandemic was bad. As a planet we knew very little about Covid-19 at the start, which led to some bad decisions. The U.S. included knew little and then as data and information became available we threw that crap right out window because it did not support media narratives. This decision making led to stoppages in felling trees, which led to shutdowns of lumber mills and so on.
Couple the lumber shutdowns with the desire to hoard toilet paper while simultaneously starting home projects and boom, artificial supply/demand squeeze.
But that’s not all! On top of this turd sundae, additional safety measures regulated into place caused additional slowing in the lumber mills. I did attempt to find specifics on the new measures, but the OSHA website for sawmill hazards references a variety of clips and documents, with the latest dated 2004. Super worthwhile in the year 2021… Nice job OSHA…
Not the best decision making across the board. Thankfully, while the cost of trees is going up, the cost of labor is going down, right?
Home Building Labor… Here, there, and nowhere.
This quote sums up this entire section
In all my years in the business, I’ve never seen prices go down
Gregg Cantor, CEO of Murray Lampert, a home contractor for 37 years!
Can you think of another industry where innovation doesn’t affect price over the course of 40 years!
So, what labor areas are stopping me and you from renovating the home of our dreams without having to sell off a child to Nancy Rumpelstiltskin?
Permits. Permits and associated “expert” costs can make up 5 to 30 percent of a home budget! Permit processes are long, inefficient, expensive, and typically designed to be artificially slow. This allows cities and towns to manage their growth and infrastructure resources. Instead of using human innovation to solve problems, artificial bottlenecks have been introduced.
Building Codes. A quick trip down this shell game taught me Codes are the building industry equivalent of fintech Compliance. Why does something cost triple the amount and take four times as long. Codes… just because.
Consider this little tale.
When having my NEW Rheem water heater reviewed by the the water heating company I was told that they couldn’t work on the water heater because I purchased it from a big box store. Additionally, I was told that if I wanted to replace my NEW Rheem water heater with a New Rheem water heater that the company could work on, the price would be 4700 dollars.
1200 dollars for the water heater (which cost 550 dollars at the big box store) and 3500 dollars for install. Why 3500 dollars for the install you ask? The pipe, installed by a water heater company, which vents the water heater exhaust is NOW too big. When it was installed it wasn’t too big but now it is too big. You might be thinking, did I have a magic venting pipe installed? I did not. Code changed. To do the work, got to be to code…
Consider this. The International Residential Code (IRC) used in 49 states as a basis for building codes is estimated to have caused an increase in home costs up to $32,000 between just 2009 and 2018, per home. Multi family buildings saw an increase of $25,000 between 2015 and 2018.
Actual Labor makes up the largest single concern of NAHB builders. Why? Consider that there is a rough shortage of 200k to 300k construction labor jobs. During the pandemic, when tons of people lost work the shortage dropped to 200k to 300k labor jobs. Not a typo. It didn’t drop.
Failures by the industry to train skilled labor, invest in education and develop the labor talent is now exacerbating the problem. Not enough people coming in and getting trained, too many people retiring is causing the skilled labor gap to widen.
Branding sucks as well. Starting plumbers for example can make 50k to 60k per year. But that isn’t a trade we as a community actively promote.
What does all of this mean?
The world of home building and renovation is a big bunch of suck right now and the prospects for getting better look dim.
Are you frustrated too? Share the gift of solace.
Lies, Damned Lies, & Statistics
Readers are likely aware of my disdain for the major news sources. Left, right, north south, up & down, just a bunch of colon facts if you ask me. They can be reliably counted on for two things. Selling some comically biased narrative and rubbing their proverbial butts all over data science and statistics.
Thankfully the latter is like Old Faithful, it continually giveth.
So, let’s play what is wrong with the chart. (Yes, being from MSNBC is really wrong, no that isn’t the “what’s wrong” that we’re looking for.)
That is quite the interesting legend. 1-99 cases, yep makes sense. 100-999 cases, I’m with you. 1,000 - 10,000 cases, ok, not sure why the slight change in cadence but sure. 10,001… oh. Nope.
30,000+ Cases. Huh. That is super interesting. So we apparently have no states with 10,001 cases to 29,999 cases. I guess we also have states with 30k cases or more. Except… no we only have 1 state with with more than 30k cases and it (New York) has 44k plus cases.
As budding visualization experts, why would we change cadence in our legend, twice in a single graphic? First, the switch to 1,000 to 10,000 (should be 9,999) is a little odd.
Second, and more egregious than the first, choosing the arbitrary number of 30k plus.
Come on MSNBC, you already skipped a giant case load amount, what purpose could making the legend case load smaller than the one state that fits in that category?
Hmm, imagine we wanted to do downplay the egregious failure of a single state by monkeying with the visualization… yes, imagine…
Let’s Get Visual
Just what in the hell are you looking at above? As some know, I am a big fan of Leonardo DaVinci. The visual above is an interactive webpage of the Codex Atlanticus developed by The Visual Agency. This might just be one of the coolest things to have ever graced this newsletter.
This web app is an interactive visual experience that allows you to explore the Codex Atlanticus, currently being preserved in the Biblioteca Ambrosiana in Milan.
Absolutely brilliant use of technology.
Fun fact, the Atlanticus gets its name from the large sheets of paper the note pages were pasted to during their collection in the 16th century. These sheets were normally used for making Atlases.
Another fun fact. While DaVinci was born in Florence, he spent much of his life living in Milan. Two of many notable works during his time in Milan, The Last Supper, some little mural he made AND sketches for an entirely new concept of city design.
Looking to share the DaVinci fun?
This week’s PSA comes courtesy of an ongoing battle many of us have faced…
Lowes vs Home Depot
I’ve had the benefit for years of being near a Home Depot but lacking a Lowes so it wasn’t a consideration I ever had to make. However, with the impending move, I now have the opportunity to evaluate who provides a better experience.
Needing carpet material and install I naturally jumped onto the Home Depot website to see what was available. No real options other than to schedule a day for a measurement. As I haven’t taken possession of the house yet, I needed something flexible time wise. Home Depot only had a day picker.
Phone call with Home Depot led to this interesting bit of information, no time window can be requested… Wow, really. Even the cable company lies to me and gives me a window. However, Home Depot can add a note in my file and suggest someone working north to south get my appointment so it is near end of day. Works for me. “Add a note, I can do between 2 pm and 6pm.”
Day of. Get a call from the measure guy at 7:10 am. “You’re first on the list, I will be there around 7:30 am.” WTH. “That doesn’t work, do you see the note on the order?”. “Yea, Home Depot doesn’t do time windows so 7:30.” “That doesn’t work for me, I wish that this service was customer oriented.”. “Home Depot is very customer oriented.”. “Well, that time doesn’t work, please let your manager…” <click>
That’s right, the Home Depot rep hung up on me after telling me Home Depot was customer oriented.
Alright, let’s try Lowes. Went in store so I could explain the situation. Manager from lumber came to flooring to help as flooring was quite busy. Time frame needs check. Date picker and time picker available on web or in store, check. Handed me a print out with the measuring window and walked me through the process, check.
The smoke and explosions cleared. A winner emerged from the dissipating smoke.
Lowes stands triumphant.
And that is how an organization earned my business and another org lost thousands of dollars a year in business not to mention a likely 10k dollar flooring job.
Want to comment on Home Depot’s loss?
Trying out a new little section for this humble newsletter. I’ve had feedback that the sections and info on the financial realm are popular so I thought I would try out a dedicated section. This is definitely not advice for investing or anything like that. Simply an area to chat about interesting topics in finance.
Welcome to Financializations!
This weeks interesting note: Micro investments in Art.
This popped up on my radar last year, saw an ad for Masterworks (not an endorsement, just an example) that caught my eye.
The idea is pretty interesting. Instead of someone plunking down 25 million bucks on a worldly piece of art. Think Van Gogh, Picasso, Warhol… You invest into a fund and the fund uses its pooled buying power to build an art portfolio. Then as assets sell, the fund nets a return (hopefully) and you net a share of the return based on your investment in the fund.
Haven’t invested and don’t know anyone who has, but it certainly is an interesting approach to world class art and a huge step in making it accessible to those of us that don’t own a billion dollar tech company.
The performance is pretty nice if it is true.
Anybody dipping their toes into the art investment waters?
World of AI
For this week’s World of AI, I thought we could go big. 100 million people big!
Netflix’s subscriber base is north of 100 million. That’s a lot of subscribers and a huge amount of data. Here are some interesting notions to ponder as you consider the impact AI & ML and what it can mean to a company with that much data.
Netflix, through the use of their machine learning algorithms, influences 80% of the movies and shows that are watched on their platform. This means that certain media can be loaded closer to subscribers (cheaper streaming). Certain media can be identified for better licensing (cheaper pricing).
In addition, subscribers are less likely to leave because awesome shows like Lucifer get new homes when they are wrongly cancelled and live out their showy life in harmony! (Netflix, how about bringing back the show Forever… waiting on you Netflix).
How much does that prediction algorithm mean to Netflix? Consider in 2009, Netflix offered a million dollars for the best movie prediction algorithm. That work is estimated to have saved Netflix 1 BILLION dollars in customer retention. Per Year…
Machine Learning got your intrigued?
Oscar night this past Sunday so Twitter was all a buzz with; wait for it.
Best picture… NOT! Nobody cares two cents about those crappy indie movies no one has seen… or Borat.
But Twitter was a flutter over Oscar Swag Bags!!! If 205k dollar swag bags don’t tell you someone is in touch with the general population… what does?
So what does a swag bag with 205k dollars works of goodies consist of?
A 4-night stay for two at the Golden Door spa in Escondidio, CA
A 3-night stay at a lighthouse boutique hotel on a remote island off Sweden
10 personal training sessions with personal trainer Alexis Seletzky
A free session at Art Lip, cosmetic surgery clinc
A bottle of bullshit..er I mean molecular water from HFactor
Vegan Sneakers…wait, that can’t be right… nope Vegan Sneakers is correct
Upcycled sunglasses. It was explained to me that upcycled means I took some old stuff and then sold it for twice the price of the original
Crystal Jewellery piece from OMGigi
Organic Tea Starter Kit
Patterned Socks from London Sock Company
Organic Soy Wax Candle
and a children’s book on being anti-racist by a diverse, but also not so diverse, all female team.
My favorite thing in this bag, besides the 4 night stay at the Golden Door spa, is the Hydrogen Water. Hydrogen Water is regular water priced at the regular list price cost of a Monster or Red Bull. It also has some hydrogen gas in it. Let’s just say that significant longitudinal studies are lacking.
Photo of the Week
A lifetime ago in Florence. Shooting west, the Ponte Vecchio behind me. This was taken from the Ponte Santa Trinita and the bridge in the picture is the Ponte Alla Carraia. The river is the Arno.
I could have explored this city for weeks.
I look forward to giving my family a chance to see places like this. I look forward to going back to places like this now that I am a decades plus better of a photographer.
Quote of the Week
Creativity is thinking up new things. Innovation is doing new things.
- Theodore Levitt
Man. Solid week, feels good to be back in a cadence. Some fun topics to boot. Welcome Caleb, thanks for the sign up!
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