The latest problem facing commercial construction in Detroit is skyrocketing material prices. With an increase in steel and lumber costs, jobs become more expensive to complete. Or companies have to cut costs somewhere else, such as in construction salaries. Here are some trends that are impacting commercial construction in Detroit.
The Recent Surges in Steel and Lumber Costs
How big of a difference do the recent surges in steel and lumber costs make? Consider that costs for those materials have increased about 20% to 25% recently. Since these are two of the main materials used in construction, these price hikes can significantly affect the bottom line of construction projects.
For even more dramatic figures, look at the year-over-year changes. From January 2020 to January 2021, the price of softwood lumber increased 73%. This included a 14% increase from just December 2020 to January 2021.
The figures for other materials are also bad news, but not as significant. Year-over-year, iron and steel saw an increase of 15.6%. Steel mill products increased 7.4%, and fabricated structural metal products increased 3.2%.
Other Concerning Construction Figures
You can also examine the PPI (producer price index) to get a feel for market costs. This price is what contractors would charge when constructing a fixed set of buildings. The “bid price” PPI hit its low in April 2020 and only increased 0.1%. However, new construction increased 8.1%.
For brass and copper mill shapes, the PPI increased 6.8% in December 2020 and 20% year-over-year. These figures for plywood and lumber were 6.7% monthly and 36% annually. For steel mill products, the figures were 3.7% and 2%, respectively. For prefabricated metal buildings, they were 2.6% and 12%, respectively.
The Beige Book
The Beige Book from the Federal Reserve also reported an increase in prices for building materials. The same is true for construction, shipping services, and steel products.
Increased Material Prices Increase Construction Prices
As the cost of steel and lumber increases, other relevant factors, such as construction estimator salaries, stay the same. The result is that construction companies have to increase the costs for their projects. This has led to significant increases in the cost of commercial construction projects.
To see the impact, start by looking at a much smaller scale in another city. In Birmingham, Alabama, the cost of a high-end home’s lumber framing doubled to $71,000. The price changes are similar across the country and across construction projects.
Labor Demand Remains Despite Impacts on Commercial Construction
Even with the increasing costs affecting commercial construction prices, there is still a demand for labor. As of the end of November, there were 236,000 job openings within construction. This is an increase of 9.8% from the previous year, giving hope to those searching for construction careers and indicating a labor shortage.
The other job-related figures for construction recruiting support this idea of a skilled labor crisis. November saw a year-to-year drop of layoffs and discharges of 14% and quits. There was also a drop in hires of 5.6%, pointing to the need for skilled applications that appeal to construction recruiters.
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