January 25, 2023

Weekly Blog 0003

Is there a “Shrinkflation” in House Construction?

Is there “Shrinkflation” in House Construction?

I’m not an expert in the field of economics to discuss numbers or graphs, but I hope I can give you a good grasp of this terminology by providing real-life scenarios related to my field of practice.

Inflation is everywhere. In fact, it is one of the biggest challenges to the construction industry as it may affect prospective clients to halt or downgrade their house projects. It is also frustrating for us, builders, in the estimation process as we grapple with the consistent price increase of materials and deal with the inflation problems from our suppliers or sub-contractors. Within the 30-day validity of our quotation, a sudden price increase may happen. Our skilled workers may even search for other job opportunities if we don’t make our salary competitive. Thus, shrinkflation is an option for builders to survive the economic turmoil.

What is shrinkflation?

Shrinkflation is the practice of reducing the size of a consumer item while maintaining the price. In short, you will get less of something but for the same price. It is not only evident in your pandesal (a type of Filipino bread); it may happen to you in building your home.

What could shrink in the items or services of contractors? Lesser scope of work. Cheaper materials to be used (The worst case is the use of sub-standard). Shortcut of construction methods. Reduce Construction floor area (you won’t maximize your space). Cheaper labor wages (which may affect workmanship).

In construction, shrinkflation is an illusion created by some contractors that inflation is non-existent or imaginary. Is this fraud? Frankly, it is not unlawful. It is a trick or common tactic to lure prospective clients. Why? Because all contractors are in fierce competition to bid for lower prices. Sad to say, based on my experience, most clients consider affordability superior to quality. 

CASE 1: If a contractor says to you that he/she can build your house at 25,000 pesos per sqm with Standard Finishes. Beware, it’s a red-flag signal. Obviously, a sham. Unless that contractor is willing to build your standard house out of charity. Most of these contracts end with tragedy where the contractor ghosted their clients. A horror story, indeed.

CASE 2: If a contractor says to you that he/she can build your house at 25,000 pesos per sqm with Basic Finishes or Bare Finish. The economic term– “shrinkflation” shall be relevant to you. So please be mindful that the output may seem incomplete to you, which will lead to a series of change orders or additional work.

Furthermore, a friendly reminder, don’t always go for the lowest bid price offer. Good things don’t come cheap. You get what you pay for. Cheaper construction is not always better.

CASE 3: If a contractor says to you that he/she can build your house at 35,000 pesos per sqm with Standard Finishes. Well, it is the prevailing price range. However, you should still review the details of what is included and excluded in the contract.

By the way, I think it’s also a red flag if a contractor says “All-in” price. You should review the exclusions/not-included items before signing the contract. I will always repeat this in all my blog content. There is no such thing as free. Construction is business. If it was stated as “free design”, the cost is hidden somewhere.

To keep you updated, the Standard finish level at 25,000 pesos per square meter of the past (pre-pandemic era) is now 35,000 per square meter for the year 2023. The 25,000 pesos per sqm is now at the Basic level or the also known as bare finish.

Note: Please be informed that “per square meter basis” is only a rule of the thumb for statement of probable construction cost. In short, it’s only an assumption in the early stage of design. A guide for you if you have budgetary concerns or limitations. The final scope of work with specifications shall govern.

Unfortunately, Shrinkflation in construction is already a common practice among builders and will likely stay to compete for lower pricing. So, it’s up to the client to pay extra attention to the scope of work and specifications. You may opt to tell your builder to search for alternatives or substitutes. Details matter. Take a look at exactly what you are paying for. Review the contract. The outcome of your dream home is in the details.

About the author

Genna Domingo is the Principal Architect & Managing Director of Archidome Construction. She is a graduate of Mapua University and fourth placer in January 2019 Architecture Licensure Examination. She is passionate about design & build practice, renovation, tropical architecture, and urban design.