Construction Costs Rising Due to Stunted U.S. Construction Industry, says Report

PHOENIX, Ariz. —   Rider Levett Bucknall reports that construction costs continue to rise nationwide, in part, because the overall U.S. construction industry in 2015 is smaller than it was prior to 2008 when the recession began. The firm reported its findings in its newly released First Quarter 2015 USA Construction Cost Report.

“In those areas where construction activity is picking up the most, the smaller-sized industry is struggling to keep up with demand,” states Julian Anderson, president of Rider Levett Bucknall North America. “Although the actual costs of labor and materials continue to increase slowly, the growing demand and limited supply of subcontractors has led to upward pressure on bid prices in busy areas.”

Rider Levett Bucknall's research also indicates that U.S. construction cost inflation continued to rise in the first quarter of 2015 at an annualized rate of 4.64 percent. In contrast, the Consumer Price Index for all urban consumers fell at an annualized rate of 4.03 percent in the same period — due to a plunging energy index triggered by falling gasoline prices.

The firm, citing the U.S. Bureau of Labor Statistics, reports that the large fall in the CPI in January was attributed to a 9.7 percent drop in the energy index which was, in turn, caused by an 18.7 percent drop in the gasoline index, the sharpest in a series of seven consecutive declines. The energy index would have risen 0.1 percent if the gasoline index had remained unchanged.

According to the U.S. Department of Commerce, construction put-in-place during December 2014 was estimated at a seasonally adjusted annual value of $982.1 billion, which is 0.4 percent above the revised November estimate of $978.6 billion. The December 2014 figure is 2.2 percent above the December 2013 estimate of $961.2 billion. The value of construction in 2014 was $961.4 billion, 5.6 percent above the same period in 2013.

Rider Levett Bucknall tracks construction costs in 12 major U.S. cities. From January 1, 2014 through December 31, 2014 the national average increase in construction cost was approximately 5.5 percent. Honolulu, Hawaii experienced the greatest annual increase showing escalation over 13 percent while Boston, Massachusetts; Chicago, Illinois; Denver, Colorado; Los Angeles, California; New York, New York; Portland, Oregon; San Francisco, California; Seattle, Washington and Washington D.C. experienced more modest annual increases around between 4.1 percent and 6.1 percent. Las Vegas, Nevada and Phoenix, Arizona experienced slightly lower annual increases around 3.6 percent.

“We are seeing the effects of the lack of skilled labor that we have been observing for the past eighteen months,” adds Anderson. “Increasing construction activity continues to deplete available resources. This issue, in particular, is driving up costs in certain areas around the country and must be addressed in order to find a long-term solution.”

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