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How Much Does it Cost to Build a House in Louisville?

Louisville, Kentucky, USA skyline on the river.

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Louisville is an exciting city, known for many attractions. It is the hometown of “the greatest boxer,” Muhammad Ali, and is famous for several other sports-related attractions such as the Louisville slugger baseball bats and derby races. People also visit downtown to join the Kentucky Bourbon Trail, where tourists can navigate the popular distilleries and have tasting experiences. In addition, one of Kentucky’s Fortune 500 companies Yum! Brands is headquartered in Louisville. The company owns several well-known fast food chains such as Pizza Hut, Taco Bell, and the city’s very own Kentucky Fried Chicken (KFC). 

Also known as Bourbon City, Louisville is a bustling area, with VacationRenter ranking it among the U.S.’ up-and-coming cities because of its strong music scene, nightlife, art, and low cost of living. Besides its lively culture, the people are also proudly inclusive. Louisville has been a progressive district for their support of the LGBTQ+ community, earning its seventh perfect 100 score on the Human Rights Campaign’s Municipal Equality Index in 2021.

With all this being said, prospective homebuyers and developers ask one question: how much does it cost to build a home in Louisville?

The Cost of Building a Custom Home in Louisville

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According to Clever Real Estate, new home construction in Kentucky ranges from $80 to $135 per square foot. For existing homes, the median sale price as of December 2021 is around $235,000, with an 11.9% increase since the previous year. Homes have been taking longer than a month to sell, on average specifically around 46 days. In addition, 28.2% of the homes sold in 2021 were above listing price, which means that several homes received multiple offers. This indicates that the housing market for all of Kentucky is currently very competitive. Louisville is similarly, if not more, competitive. While the median price of homes in the city is not far from the state average, the average time to sell is significantly lower at 20 days. Despite the current housing market, Louisville is still one of the most affordable cities in the U.S. for millennials: millennial home ownership is nearly up to 26% as of 2019. 

The price of a new custom home in Louisville varies with the labor and resources needed to construct it. New home construction typically includes factors that fluctuate in prices independently, such as framing, foundation, plumbing, roofing, and flooring. It also includes costs such as architecture and design fees, permit fees, land fees, and other custom features. All of these costs can fall into either the hard and soft costs of building a home. 

Hard Costs

The hard costs are expenses that fund the physical structure and construction of the house, which includes the materials, landscaping, labor, and even the total building cost. According to BuildZoom (BZ) permits, the cost of building a new custom home in Louisville costs an average of $247,500. Using bids, BZ also estimates that middle tier homes are around $107 per square foot. 

Figure 1. Typical cost breakdown of a single-family home constructed using the conventional method, according to Home Builder Digest. Image Source: National Cost Guide.

Moreover, the cost may vary with location within the city and also the customizations a client chooses in the design and construction phases. Innovative Building Materials estimates that building a home in Louisville ranges from $87 to $130 or more per square foot. This source also lists several details that affect the cost, such as the foundation, roofing, flooring, exterior finishing, the heating, ventilation and air conditioning (HVAC), electrical and plumbing. According to Innovative Building Materials, material cost comprises around 50% of the total construction cost, and depending on the type and quality, the value may still increase. Foundation costs an average of $13.34 per square foot, however adding a basement will increase the price. Exterior finishing costs, often including roofing, are between $40,000 and $60,000. Electrical and wiring ranges from $20,000 to $30,000, while installing a plumbing system may cost anywhere between $7,000 and $15,000. The HVAC installation cost varies with the size of the house and of the central air conditioning. According to Jarboe’s Plumbing, Heating and Cooling, the average air conditioner costs around $4,630 for both the equipment and installation, while installation of a heating pump is approximately $5,000.

Soft Costs

Soft costs are the expenses that go beyond the construction of the actual home, such as architectural design, land development fees, building permit fees, engineering fees, and other miscellaneous expenses. 

Cost of the Land

In constructing your new home, getting the best lot is crucial for the process. Generally, prices may vary due to factors like proximity from metropolitan areas, the view, amenities, and land topography. BuildZoom permits state that the average property size is around 3,210.60 square feet. For Zillow, the average cost of land is $44,920, with an average property size of 12,262.14 square feet, or around $3.58 per square foot. This value may still increase depending on the development status of the lot since some of the listed properties may be undeveloped for residential construction.

Permits and Other Fees 

Permit applications and inspection requests may be submitted to the Office of Construction Review online via the Louisville Metro Business Portal.  Other than the building permit for new residential construction, there are other residential home permits for necessities that may also need to be submitted: HVAC, pool or spa, foundation, fire suppression, and electrical permits. 

The minimum for plan review fees is $30 or one-third (1/3) the normal permit fee, whichever is higher, while the permit fee for new residential construction is at least $75. For single or double family homes, permits cost $0.105 per square foot. Additional inspections not covered by the initial permit fee is $40. As for electrical permits, the initial installation for single family homes is $200, which already includes three inspections. Any additional inspections is another $50 on top of the initial inspection. New HVAC systems for single residential starts at $105 for the first system, and an additional $50 for the second system onwards. If the home has a mechanical refrigeration system, it will be $40 for every compressor, while manufactured fireplaces are an extra $40. 

Architecture and Design Fees

Architecture and design fees vary with the size, scope, and complexity of a project. The needs and lifestyle of the client also contribute to the overall or final design. Some designs may be simple and straightforward, while some may require extensive research and attention to detail. Generally, the cost of architecture and design is computed using a percentage of the total construction cost, but some may charge a fixed rate. Nationally, architect rates can range from 5% to 20%. HomeGuide states that some may charge fixed hourly rates instead, starting from $100 and can go up to $250. For Louisville, according to Innovative Building Materials, architect fees can go from 8 to 15% of the construction cost, or approximately $15,000 to $80,000. 

How do the custom home building costs in Louisville compare to other nearby cities?

Louisville, Kentucky, USA skyline on the river.

Louisville saw a surge in home sales in 2021 due to cheap interest rates and low housing inventory.  Last year was also considered to be the biggest year-to-year increase in the last decade, according to the Greater Louisville Association of Realtors. The median home price in the city is at $230,000 as of November 2021 according to RedFin. Although the median is lower than the state average, the average number of days a Louisville home spends on the market before it gets sold is around 17 days. A lot of homes get multiple offers, and demand homes even sell at 2% above the original listing price. 

Prospect, in comparison, is less competitive, with in demand homes selling at 1% above the listing price and only some listings getting multiple offers. As of November 2021, the median housing price in the city is at $586,196, and each home spends an average of 18 days before it gets sold.

What Leading Custom Home Builders and Architects that Serve the Louisville Area Say

To give more information on the housing market, we reached out to home builders and architects that serve Louisville to give us their insight regarding the current costs of single family home construction.

Tim Winters, Principal of Timothy R. Winters Architect, shared that clients who would want a custom home on a lower budget would normally hire a builder or a home draftsman rather than an architect. Every project is different since clients have varying lifestyle needs. With that, architects can charge either using a percentage of the total construction cost, or have an hourly rate. Building a custom home is a personal statement, so there is no fixed way of determining final costs until the final design, and residential clients may even spend a long time deciding what to include or remove from the plan. Even with clients having their preferences in design, Winters believes that it is best to build homes that can stand short-term trends using classic, timeless designs, and prefers to construct houses that are beautiful and historically-correct, yet modern and up-to-date when it comes to its functions. Winters also discussed that the cost of construction today is the highest he has ever seen in his 33 years in the business. The COVID-19 pandemic and inflation changed the construction industry. Having experienced similar events prior to the pandemic, he shares there could be a future economic downturn that will affect housing prices.

Martha Wolford of Wolford Built Homes, discussed their square footage costs and how the rising building costs are expected to reach an all time high in summer of 2022. For middle range homes, they cost around $200 to $350 per square foot, and high-end or luxury homes are $350 to $600 per square foot. With the labor shortage affecting every aspect of the construction industry, from the factories, to the skilled trades, customer service in the field has taken a heavy toll. The prices of several materials such as lumber and steel have also seen their largest increase ever since the government started recording data in 1949. Vendors are experiencing delays, with the high demand from customers, they have to wait longer to get a response from the manufacturer, and probably even longer to actually order and receive the item. Wolford adds that doors and windows have a particular problem, having lead times of 14 to 30 weeks, and even one of their window manufacturers losing 50 workers due to COVID. The improvement in technology and creation of better products also contribute to the rising cost of building materials. With that, seasoned builders like Wolford Built Homes are required to be more flexible when it comes to taking responsibility and multitasking. For future homeowners who would want to build, Wolford advised that one should first find a good builder with a trusted crew that can get the job done. As soon as the plans are confirmed, it is crucial to order materials, and be prepared with back-up options or more accessible alternatives.

The Future of Louisville’s Residential Construction Industry

When it comes to choosing between renting or buying a home, Attom Data Solutions LLC, a California-based property data provider, showed in their 2022 Rental Affordability Report that even though home prices are reaching record highs, 58% of U.S. counties show that it is still more affordable to own a house. This number includes Louisville, specifically Jefferson County Kentucky and Clark and Floyd County Indiana.

The COVID-19 pandemic shifted markets all over the world, disrupting supply chains and provoking a staggering inflation of 7%. The U.S. Federal Reserve announced that lowering that number will be their priority, and economists predict that the Federal Reserve may enact four rate hikes in 2022. The increase was already announced in December 2021, and mortgage rates have increased higher than during May 2020. This move is said to help improve the current housing market to recover, which has become too competitive to the point of buyers waiving inspections. The new rates may encourage prospective homeowners and home buyers to carefully plan out their budget and preferences before pushing through with purchasing a house.

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