Inflation tempers optimism about construction in North America

In the 12 months ended December 2021, bid construction costs rose 7.42 percent. “These increases are reminiscent of the sort of cost increases that we saw in the period 2004 to 2007,” wrote Julian Anderson, FRICS, President-North America for the construction advisory firm Rider Levett Bucknall (RLB), which today released its Fourth Quarter 2021 North America Construction Cost Report.

RLB’s National Construction Cost Index for the fourth quarter stood at 225.38, 7.4 percent higher than the Index for the fourth quarter of 2020, and 1.8 percent higher than last year’s third quarter. In his essay for this report, Anderson was optimistic about the eventual positive impact of the recently passed Bipartisan Infrastructure bill on construction and repair.

However, the force of that legislation could be stymied, or at least delayed, by supply chain problems that continue to plague the industry. Bottlenecks at western ports and chronic shortages of skilled labor still contribute to this volatility. Cost increases are also a function of rising inflation, as the Consumer Price Index registered a year-over-year increase of 5.38 percent.

On the positive side, America’s Gross Domestic Product, which measures output, returned to 2.1 percent, which was about where it was in the pre-pandemic fourth quarter of 2019. And the rate of unemployment for the construction sector dipped to 4.5 percent in Q421, versus 9.6 percent in Q420. Construction tracked national unemployment that has also been on a downward trend.

SEVERAL METROS BUCKED QUARTERLY COST TREND

Nonresidential construction spending in November 2021, the latest month for which data were available from the Census Bureau, stood at $820.6 billion, 3.4 percent higher than the same month in 2021. But materials and labor keep getting more expensive, too. RLB’s Comparative Cost Index found that, from October 2020 through October 2021, construction costs rose by 10.09 percent in Seattle, by 9.11 percent in Washington DC, by 9.01 percent in Chicago, by 8.85 percent in Boston, and by 8.51 percent in New York.

Indexed by building type, construction costs were among the highest in New York for offices, shopping malls, hospitals, single-family homes, and high schools. San Francisco’s construction costs exceeded the other markets RLB tracked for five-star hotels, hospitals, warehouses, parking structures, multifamily homes, high schools, and universities.

Honolulu is the most expensive market in which to build elementary schools. But that market, along with Denver, Las Vegas, Los Angeles, Phoenix, Portland, and Washington DC, experienced overall cost increases between July 1 and October 1 that were less than the national average for that period, according to RLB estimates.