Construction Cost Trends

Over the past decade, we’ve seen construction cost rise and fall due to the economy, instabilities of material prices, and the low availability of skilled labor. The result of these impacts have driven the increases in construction cost, created uncertainties, and have led some owners to consider delaying, re-scoping, and even cancelling projects.

One of the most challenging aspects for a construction estimator is staying on top of ever-changing fluctuations in pricing and trying to predict what projects will cost in a year or several years’ time.
Over the past decade, we’ve seen construction cost rise and fall due to the economy, instabilities of material prices, and the low availability of skilled labor. The result of these impacts have driven the increases in construction cost, created uncertainties, and have led some owners to consider delaying, re-scoping, and even cancelling projects. The unknown of tariffs is a main cause for uncertainty among contractors. Coupled with a shortage of skilled workers ready to enter the workforce, the industry is facing a lot of uncertainty.
In 2018, we saw material prices become even more volatile due to a growing trade war with China. The various tariffs included a 25% tariff on steel imports, 10% tariff on aluminum imports, and 10% tariffs on a wide range of Chinese goods imported to the United States, including many goods utilized by the construction industry. The United States also imposed a 20% tariff on Canadian softwood lumber as they saw the United States receiving less than fair value because of Canadian government subsidies made to Canadian producers of softwood lumber.
Steel & aluminum import prices have increased due to tariffs, and domestic prices have increased because of the reduced availability of lower-priced imports. 2015 was the lowest we’ve seen in the past five years, with October 2018 being the highest and coming down since then.

Lumber prices increased more than 30% in 2018, reaching the highest levels on record. Along with the Canadian tariffs, the hurricanes in Texas, Florida, and the Carolinas had an impact on lumber last year, which largely affected the end of 2017. These came down significantly toward the end of 2018. We are hopeful lumber prices remain at current levels.

Crude oil is averaging around $65-70 per barrel and is forecasted to sustain that price until 2023. Energy professionals believe there is enough development to meet consumption growth. Petroleum pricing affects a multitude of construction materials, including roofing materials, plastics, piping, asphalt, paints, and more.

Skilled manpower continues to be a high concern for contractors as older craftsmen retire. In October 2017, CBS News reported “for every skilled worker entering the workforce, there are five who retire.”
According to Where Are All the Builders? from June 2018, the median age of a construction worker is 42.6, while fewer than 9.5% are younger than 25. This clearly illustrates the larger-than-normal share of workers on the older side compared to national averages. Finding workers with adequate skill levels is expected to be an ongoing difficulty for contractors across all trades, with concrete workers, electricians, and steel erectors showing the largest shortage.
With volatile material cost and skilled labor shortage, it’s a fairly safe bet that we can expect to see projects continue to rise in cost and in construction duration for the near future.

Sources
Turner Construction Cost Index
United States Census Bureau
Rider Levett Bucknall Actual Cost Index
Canno Design’s Construction Service
USG + U.S. Chamber Of Commerce

Thad Berkes
Associate, Chief Estimator