Construction Costs are Still Climbing

//Construction Costs are Still Climbing

Construction Costs are Still Climbing

The construction industry has made a steady comeback after taking a hit during the recession. With the U.S. economy in recovery, the demand for new construction projects has increased and so has construction costs. Material costs and labor availability are the major factors driving up construction expenses.

What Factors Impact Material Costs

Input costs for nonresidential structures in 2017 are up 4.3%. This number might seem small, but when you are working on a multi-million-dollar construction project, the rise in price affects the budget significantly. Several factors influence material costs. One is the price of gas. If it costs more to transport the materials, manufacturers have to compensate by inflating the price. Another issue is the supply of steel. The steel industry is facing a crisis because many major steel mills in China have recently filed for bankruptcy.

This affects the cost of nails, security wire fencing, forklifts, and demolition machinery. Aluminum faces similar issues. Another issue is that building codes and fire department regulations have also changed. Buildings now need to have more sprinkler systems, special electrical breakers, and backflow regulators installed. So not only do the materials cost more, builders need to use more of them.

The cost of materials impacts current construction projects, as well as future projects. A lot of time passes between when a project is bid on, when a project is started, and when a project is completed. Thus, when material costs go up, construction firms need to figure the price spike into their budget for future projects. This increases the cost for both developers and consumers.

Why Labor Costs are Rising

Because construction projects are planned in advance, fluctuating material costs are usually built into the budget. A change in the cost of labor has a more immediate effect on construction costs. There is still a shortage of skilled labor in the construction industry. This is the main problem. This shortage means firms have to pay more for skilled workers and pay more for training. One reason that skilled laborers are becoming fewer and fewer is the societal pressure to attain a 4-year degree. Perception is another issue. Construction firms are getting serious about their recruitment strategies to persuade more young people to pursue careers in construction. This is beneficial in the long-term, since the industry is expected to face a 2-million labor shortage by 2020. Anything that counteracts the labor crisis is a good investment, however, it spikes the cost of construction in the short-term.

Competing with the Rate of Inflation

The cost of labor and materials are increasing more quickly than inflation is. This means that construction firms have to spend less in other areas without sacrificing quality or safety. Using more energy efficient technology is one way to do this, as energy costs are a major expense. However, this alone is not enough to offset labor and material costs.

How Retention Can Help

The expense of recruiting new talent is higher in a competitive market because most of the skilled laborers are already employed. Therefore, it is important that when construction firms hire new talent, they choose people who are going to be there for the long haul. Construction firms have to rethink compensation, employee benefits, and their company’s culture. If employees like their managers and coworkers, feel secure in their position, and feel like they are contributing positively the company’s objectives, they will be more likely so stay on. The best way to lower labor costs is to improve retention strategies. This is especially true given the extreme labor shortage.

 

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By | 2018-06-11T14:30:37-04:00 June 12th, 2018|Construction Blog|

About the Author:

The Birmingham Group has been serving the construction industry since 1967. Brian Binke took over the firm in 1995 and since that time, he has personally placed over 1200 construction managers and senior leaders, with company revenues ranging from $10 million dollars to the largest ENR 400 companies in the industry. Brian is an industry innovator, with a specialized skillset in construction. His keen understanding of business, the construction industry, and ability to effectively match and recruit top leaders has led to many accolades. He was ranked the #1 International Billing Owner in the construction industry for his own personal production and has been consistently recognized as one of the Top 10 International Billing Owners out of 800 owners worldwide. This includes owners across every industry. In 2013, Brian was awarded the #1 International Billing Owner within the entire network. For over two decades, Brian has been considered one of the most influential thought leaders in the construction industry. His business and construction knowledge are used as a resource for some of the nation’s most prominent publications. In the past year alone, Brian has been quoted in or authored articles for The Wall Street Journal, CBS News, MoneyWatch, Construction Today, ConstructionDive, United Rentals, Fast Company, Entrepreneur Magazine, American Express, Builder Magazine, and Human Resource Executive, among others. "I believe companies are a lot like sports teams. The team with the best players usually wins. It is my passion to deliver the absolute best talent to my client companies – the market’s top performers, the talent that every company wants to hire but which seldom seems available. To put it simply, I thrive on helping my clients build their Dream Team." - Brian Binke, The Birmingham Group
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