Construction costs have increased to about the same levels they were in September 2007, according to a recent report from construction consulting firm Rider Levett Bucknall. From the last year and a half of quarterly upticks in construction bid prices, RLB reports it is clear that construction costs have passed their low point and are heading upward.
The concern is that bid prices are rising less quickly than the combined cost of labor and materials, says RLB President and Global Board Member Julian Anderson.
“Our July 2011 figures show that bid prices are now in danger of actually falling below the indexed cost of labor and materials,” he says. “Common sense tells us that this trend cannot continue without serious consequences for the industry—consequences that may include more construction-related businesses closing and more projects going bad.”
All 11 locations where RLB collects construction cost data continued to report positive inflation for the second quarter of 2011. Modest quarterly inflation of between 0.2% and 0.5% were experienced in Las Vegas, Phoenix, San Francisco, Seattle and Washington, D.C., but Boston, Denver, Los Angeles, New York and Portland saw inflation of between 0.5% and 1.0%.
Despite a nominal increase in construction prices in Denver over the last quarter, there appears to be little evidence of the return to a more stable economy, and all too many examples of projects being bid by contractors and subcontractors alike at “break-even” levels or lower simply to secure work orders.
“What the construction industry now desperately needs is a sustainable recovery in the general economy,” Anderson adds. “But with the recent debt ceiling and deficit reduction debates at the federal level, the subsequent downgrade in credit rating by Standard & Poors and the roiling in the stock market, how our country will achieve this remains a matter of debate.”
Rider Levett Bucknall reports on the comparative cost of construction in 11 U.S. cities on a quarterly basis, indexing them to show how costs are changing in each city in particular, and against the costs in the other 10 locations.