Building Costs Are on the Rise

December 29, 2014

Building costs are surging at the fastest pace in six years, according to a newly released report by Rider Levett Bucknall, a property and construction consulting firm, which tracks the costs of new commercial, residential, and other buildings. 

Construction costs jumped 1.66 percent between July and October – the largest three-month increase since early 2008, the report notes. The firm attributes the change to improving markets, noting that as demand increases for labor and construction materials, costs increase.

“General optimism with the construction sector has continued to rise,” the report says. The firm projects that construction starts in 2015 will rise about 10 percent – nearly double the estimated growth rate of 2014.

Construction costs are rising faster than the inflation rate. However, this shouldn’t cause a decrease in activity because real estate prices are rising faster than the construction costs, says Julian Anderson, president of Rider Levett Bucknall North America.

“I would expect that costs would have gone up faster at this point in the cycle than they actually have,” Anderson adds.

Honolulu, San Francisco, and Portland saw the largest price increases, rising 2.8 percent, 2.3 percent, and 2.2 percent, respectively, between July and October, according to the firm’s data on the 12 major U.S. markets that it tracks. On the other hand, the lowest price increases were in Las Vegas (0.93%), Denver (1.03%), and Phoenix (1.04%).

Source: “Construction Costs Rising as Economy Improves,” The Wall Street Journal (Dec. 23, 2014) and “Quarterly Construction Cost Report, Fourth Quarter 2014,” Rider Levett Bucknall (December 2014)