The Cost of Construction is Rising, For More Reasons than just Inflation
Written by Albert J. Haddad
Renovation and construction projects are never easy. Whether you’re considering a project on a residence or investment property, working with a contractor means you’re most likely looking at increased prices.
But why? To answer this question we have to look at the process of the contractor, the economic situation, and how each affects the cost of the construction.
Through the natural ebb and flow of economic events, it is natural for the costs of goods, labor, and services to increase. The construction industry is no different and is easily affected by economic factors.
Necessary and Understandable Factors—
Some data suggests that labor, not material, is the main culprit in the rise of construction costs. According to a Curbed report, labor costs have risen 23.6% since 2004.
There are variables that play into this rise in costs:
- The rise in cost of living and inflation.
- The shortages of construction workers, placing a higher demand on the workers who are present.
Another acceptable factor in the rise of construction costs is the hike in material prices. According to a report by the Associated General Contractors of America:
- Material costs rose 7.4% in 2018.
- The AGC believes it is due to, “double digit increases in commonly used construction materials.”
Solutions to these Acceptable Factors:
One interesting solution to the rise of material cost is the possible move to 3-d printing. One company that is leading the way in this endeavor is Boeing.
In an interview with CNBC, the airplane manufacturer announced they were looking to trim costs, specifically on their Dreamliner 787. Boeing is hoping this move will help with the cost of production for the airplane, and is a move that all manufacturers—including construction companies—could find profitable.
Unacceptable Factors in the Rise of Construction Costs:
A less palatable factor in the rise of construction costs are the inflated proposals that are presented to consumers—especially those in commercial endeavors.
Contractors are using inflated labor and material costs to additionally pad their overhead and expense line items commensurately, along with an inordinate amount of change orders. This should compel more and more people to require capped performance bid contracts.
If you have any questions how this rise in construction costs affects you or your investments, please call the Alpha-Rex team to discuss and answer questions on any property or portfolio needs you have.
