Coping with Construction Costs

It’s happening in Atlanta, GA, Portland, OR, and New York City, and it’s probably happening where you live, also. But what exactly is “it?” All across the country increased costs for fuel and food are being joined by rising costs of construction.

New York is one of the hardest-hit cities, with construction cost increases of 32% since 2005, due to higher prices for labor, lower availability of necessary materials, and the added expense of building in an already-congested urban environment, and several projects have been affected. The new PATH transit hub and the ongoing World Trade Center projects have seen cost-related trouble (delays, etc.), and other projects, like the Fulton Street transit center for the MTA, have been scaled back from their original plans.

While the cost of steel is one of the largest factors in the overall increase in construction costs, which have risen 6.5% in the last year alone, other building materials are becoming more expensive as well. Copper, brass, and diesel fuel have all seen price increases of their own, with the latter rising a whopping 61 percent since 2007, according to the April, 2008 producer price index provided by the U.S. Bureau of Labor Statistics. Following the trend, the consumer price index also rose by 4 percent since last year. The jumps for copper and brass were smaller – 22 percent increases – while steel products rose 8.2 percent. Also on the rise were prices for asphalt in both paving mixture and block forms, not to mention equipment, machinery, and even concrete products.

Greatest Impact?
With all materials becoming more expensive, it can have an impact on your basic homeowners insurance policy. Where exactly is the rise in construction cost being felt the most? It’s not in single-unit residential homes, though the cost of building them has gone up 3.3 percent since last year. Instead, the increased costs are causing the greatest in street and highway construction (a rise of almost 13% since 2007), followed by heavy construction (up 9.9 percent) and commercial buildings, which have become 6.7% more costly to build.

What to Do About It?
All of this, of course, begs the question, what do we do about it? For answers, let’s look to New York once more. City planners there have consulted with a company called Urbanomics to come up with several options to lower the cost of city construction projects. First, new accountability requirements are suggested, so that even before permits are issued monies can be allocated, and materials can be approved. In addition, salary increases for public officials, and more zoning changes to allow better development were recommended. A more controversial piece of advice was to use less-expensive, non-union labor, to help offset the cost of materials.
Of course, another option is to shift toward less expensive building materials, whenever possible. Some of these include aluminum, gypsum, brick, and clay tile, as well as certain types of lumber (including plywood) and plastics, all of which have actually gone down in price over the last year.

Construction, both commercial and residential, is a necessary part of urban development, but with materials increasing in cost almost daily, we must find alternatives in order to keep our cities growing, and our economy healthy.

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