Scarce Labor Drives Construction Costs for Multifamily Developers

The good news for the multifamily industry is that the cost of construction materials is very low. The bad news is that skilled construction workers are increasingly expensive and hard to find.

“I’m pretty optimistic that materials costs are going to stay low and maybe get lower,” says Ken Simonson, an economist with Associated General Contractors of America, an industry trade group. “My number one concern is the availability of labor.”

The U.S. economy is relatively strong—at least compared to the rest of the world. From Asia to Europe, economies around the world have struggled this year, driving down demand for products bought and sold on the global market, from oil and steel to concrete. But here in the U.S., unemployment is low. The price of labor needed to build large projects is high and rising, often wiping out the cost benefit of cheaper materials.

Overall costs rise

The prices contractors charge for construction projects, including the cost of labor, rose slowly but significantly this year, according to the U.S. Bureau of Labor Statistics. The overall producer price index for the construction of new non-residential buildings climbed 1.8 percent over the year that ended September 2015. (Costs for “non-residential” construction do not include single-family homes, and include many of the same materials and labor as large apartment developments, especially high-rise apartment buildings.)

The 12-month increases ranged from 0.2 percent for healthcare construction to 1.8 percent for schools to 1.9 percent for warehouses and industrial buildings and 2.4 percent for office buildings.

Worldwide demand for many commodities has fallen over the last year and that makes those goods less expensive in the United States.

Read entire article in National Real Estate Investor here.

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