Construction Cost Increases Ease Off a Bit in January

Arlington, Va.—Construction costs, and a lack of labor in some markets, have vexed the multifamily development business in recent years. During the initial phase of the apartment building boom only a few years after the worst of the recession, it wasn’t such as issue, but now that non-residential construction is also growing (and booming in some markets), costs have risen more and the squeeze is on for labor.

Still, the Associated General Contractors of America, based in suburban Washington, D.C., reported recently that a bit of the pressure was off in January. Basing its findings on Census Bureau data, the AGC noted that the producer price index (PPI) for final demand construction decreased 0.3 percent for the month and increased 1.2 percent year-over-year, down from a 1.8 percent rise in 2015.

The costs involved in residential construction were down, the organization found. PPIs for new single- and multifamily construction posted year-over-year declines of 0.5 percent and 0.6 percent, respectively.

Materials important to construction that had notable one- or 12-month price changes, include diesel, down 7.9 percent for the month and 35 percent for the year; steel mill products, down 0.3 percent and 19 percent, respectively; copper and brass mill shapes, down 1.6 percent and 18 percent; lumber and plywood, up 0.2 percent and down 7.3 percent; and cement, up 2.6 percent and 5.6 percent.

The overall PPI for new nonresidential building construction—a measure of the price that contractors say they would charge to build a fixed set of five categories of buildings, and an indirect influence on the cost of residential construction—rose 1.1 percent since January 2015.

Changes ranged from a drop of 0.2 percent year-over-year for healthcare construction to an increase of 1.1 percent for offices, 1.3 percent for industrial buildings, and 1.6 percent for warehouses and schools. PPIs for new, repair and maintenance work on nonresidential buildings fell 2 percent year-over-year for plumbing contractors and rose 1.2 percent for roofing contractors, 3.7 percent for concrete contractors and 5.4 percent for electrical contractors.