Hard costs

Hard costs are the money spent on the building itself. They include demolition and site preparation, foundations, structure, exterior walls and roof, windows, plumbing, electrical, heating and cooling, elevators, interior finishes, landscaping, and the general contractor's overhead and profit. Anything you could point to on the finished site is a hard cost.

Hard costs are driven by the size and complexity of the building, the price of labor and materials, the building type, and site conditions. A wood-frame building over a concrete podium costs less per square foot than a concrete or steel high-rise. Structured or underground parking costs far more per space than a surface lot. Rules such as prevailing wage requirements or design mandates raise labor or material cost directly.

In our illustrative 100-unit building we assume $16,800,000 of hard costs, or $168,000 per unit, out of a $24,000,000 total. Because hard costs are the biggest line, small percentage changes in them move rent more than large changes in smaller lines. Assume hard costs rise 10%, or $1,680,000: under our default financing that is about $114 per unit per month of added rent.

Hard costs are also where most of the contingency sits, because construction is where surprises are most expensive. The distinction between hard and soft costs is useful because the two behave differently: hard costs respond to what is built and how, while soft costs respond to process and time.