Are Construction Costs Dropping?

underconstruction.gifThe answer depends on the sector. Residential construction is off about 40%, and labor has dropped slightly in that sector, however commercial construction costs, including strip malls, have not seen this decrease. In some submarkets construction labor costs have escalated since May 2007. We need to accept that the old domestic demand and supply playbook doesn’t work as materials are now valued on a global, not simply a domestic, metric. In every cycle there are markets and submarkets that do not participate. This post contains citations from The Means Report, the Sacramento Business Journal, and finally the Dubai Chronicle where costs are escalating.

When evaluating seasonal construction pricing, both labor and materials must be considered. While in the northern US labor costs have traditionally decreased in the winter months due to weather-related layoffs, the plywood mills, concrete batch plants, and asphalt plants supply less or shut down, hence the material pricing often increases. The large homebuilders will use the derivitive markets to lock in lumber pricing on occasion, but we little guys who do $5M – $20M projects don’t view ourselves as commodity traders and pay the spot price.

from The Means Report

Cost Increases Easing Except for Nonresidential Labor

Jim Haughey

Construction costs have weakened quickly in the last few months under pressure from the 10% drop in construction activity since the February 2006 peak level. The 40% drop in single family construction spending has more than offset still rising nonresidential construction spending. Residential labor rates and margins and prices for materials heavily used in residential construction have fallen significantly but labor rates and margins for nonresidential buildings and heavy projects have yet to weaken although some modest weakening is expected in the next year.

The Labor Department price index for construction materials was at the same level in October as it was in May. Prices for some items rose during the summer but have since declined. The only significant changes since May are the 10% increase for diesel fuel and 9% increase for nonferrous pipes and tubes. These increases are more due to the falling dollar and strong world commodity demand than domestic construction spending trends. Even higher prices are likely into the winter before the commodity

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