Earlier this year, we gave an industry consensus of the cost of materials and looked at the pace of growth for architectural and engineering services, labor, and other factors that influence the construction industry.
To get ahead of the market in 2018, we’ve decided to examine the cost of materials and give an industry consensus forecast for the upcoming year.
Overall Construction Costs in 2018
Overall construction costs are forecasted to increase an additional 2-3% in 2018, and that’s after what we’re expecting to be a 3% increase in 2017. Construction labor costs will lead these increases, which are forecasted to be in the 3-4% range in 2018. However, labor shortages continue to be a challenge for the industry due to a lack of skilled labor, stricter government policies around immigration, and the inability to recruit the younger generation.
“Expectations for future increases [of subcontractor rates] reached a five-year high; tightening labor market conditions combined with an uptick in activity are driving expectations of future rate increases,” said IHS Markit Principal Economist Emily Crowley. “Currently the U.S. South and West are having the most trouble finding workers leading to stronger wage escalation.”
2018 Material Cost Increase Expectations
Overall, material costs are forecasted to increase in the 2-3% range in 2018. Below, I’ve broken down the individual materials and what we expect for their cost increases to look like.
Besides labor and materials, crude oil is another important input to construction. Thus far in 2017, the cost of it has increased 12% reaching almost $50 per barrel (well below the 2010-2014 average price per barrel of $100). In 2018, we expect it to stabilize around $50 per barrel.
To see more details about what we are predicting construction costs will do in 2018, download the full U.S. 2018 forecast report.