What are Hard and Soft Costs?
Updated: Aug 3, 2020
When discussing total building costs for a new development project usually they are broken down into two categories, hard and soft costs. Hard costs include expenses directly related to the physical construction a building and occur after a building permit has been pulled and begin when ground has been broken. Hard costs will vary dramatically depending on the type of construction that is used.
Soft costs are a little more nuanced. These will include all the expenses for third party consultants that an owner will bring on including architects, engineers, surveyors, arborists, Phase 1 (environmental hazard report), developer fees, mechanical and electrical plans as well as others.
Soft costs are also going to include fees to local governments such as city impact fees, school district impact fees, inclusionary housing requirement fees, planning fees, construction tax, building and fire department inspection fees as well as others. Financing fees and carrying costs are usually included in this category as well. These can vary widely by geographic area. The core area of Sacramento can run less than $50 per square foot while some bay area municipalities can easily run over $150.
Ease of entitlement is also a factor that can make a huge difference. San Francisco is notorious for its difficult, expensive and drawn out approval process that can average over 3 years from start to finish. In Sacramento the entire process can take a year if everything goes smoothly. This timeframe can greatly impact the soft costs of a project.