Construction cost is always top of mind to builders, developers and owners, so we wanted to take a quick look at it today in our blog! We look at current and historic construction costs and the different elements that compose it, including labor, materials, services, and more. We also provide an industry consensus forecast for 2017.
Let's get started!
Current State of Prices in the Construction Industry
The Associated General Contractors (AGC) of America has done a great job compiling several construction price and cost indexes, as reported by the U.S. Bureau of Labor Statistics (BLS), into a summary table. (See the full tables and explanation). This provides us an excellent tool to look at overall construction prices, including both current values and historic activity.
For August 2016, the construction final demand producer price index (PPI) was flat over July 2016, but is 0.7% above last year. The PPI for Inputs to construction industry goods was down -0.2% from last month and -1.7% from last year.
Since August 2015, concrete block, ready-mix concrete, precast concrete products, flat glass and gypsum products saw yearly increases, with only paving down. Monthly, paving saw the largest increase of 0.9%, precast concrete fell 0.3%, and concrete block and ready-mix concrete remained relatively flat. See table below with main figures:
First Look at 2017 Construction Cost Forecasts
More important than understanding where prices are now, is predicting what they will be in the future. In this effort, we developed a cost forecast for the main elements in construction, including materials. This forecast was developed using a combination of public sources, for both historical and forecast figures, and developing a consensus forecast range.
After what will likely be 2% growth in 2016, overall construction costs are forecasted for ongoing growth in 2017 in the 2-3% range. These increases will be primarily led by gains in construction labor wages, which is forecasted for 3-4% in 2017 – this is a result of the labor shortages the industry is already experiencing.
The pace of growth for architectural / engineering services will slow in 2017, after 3% growth in 2016. Equipment will be relatively flat in 2016 and 2017, with 0-1% forecasted.
Material costs are forecasted to have a 2-3% increase. Asphalt paving, fabricated steel and concrete block pricing should resume growth in 2017 after contractions in 2016. Gypsum products will experience the strongest growth of all materials with 6-7% increase in price.
Another important input to construction, not included in the graph, are gasoline and crude oil. These are expected to nearly fully recover the ground lost in 2016 by the end of 2017. Crude oil is expected to stabilize around $50-60 per barrel, according to most analysts.
Ultimately, construction costs will vary by market. You can get these end-use and geographical breakdowns, along with more detailed insight, in our full U.S. Construction Forecast Report.
Disclaimer: Although the contents contained herein are provided under the highest professional standards in the generation of these forecasts, Oldcastle, Inc. and its Affiliates do not guarantee the accuracy or completeness of any information contained herein. Oldcastle, Inc. and its Affiliates specifically disclaim all warranties, expressed or implied, with respect to the use of this information or any results with respect thereto. In addition, the information contained herein shall in no way be construed to constitute a recommendation by Oldcastle, Inc. with respect to the purchase or sale of any investment, security or its derivatives or any other property or asset.