Understanding and Combating the Expected Increase of Construction Costs in 2018

January 23, 2018

In 2018, construction firms of all sizes can expect to pay more for labor and materials. The issue is pervasive throughout the industry, and it is important that firms understand why prices are going up in order to develop cost-saving strategies.

In 2017, material charges increased by 4.8% compared to 2016. The cost is expected to further increase an additional 2% and 3% this year. Driving this increase are the recovery efforts to restore the Southeast US and California after hurricanes and wildfires wreaked havoc in 2017. For example, the price of lumber has been particularly affected by changing conditions, as the majority of homes that need rebuilding are made of wood. The demand for resources is further heightened by industry growth and increased investment in infrastructure by the federal government. Generally, as the demand for materials increases, their prices will be driven upward.

In addition to rising material costs, the price of labor is also expected to increase in 2018 between 3% and 4%. The increase is the result of the labor shortage that began after the 2008 recession. The Associated Builders and Contractors estimates that the industry is currently experiencing a shortage of 1 million tradespeople, while the Associated General Contractors of America estimates that 70% of construction firms are having a difficult time filling hourly craft positions. Hiring qualified workers remains a looming issue for nearly all construction firms. A new generation of technology-savvy workers are entering the workforce and their attraction to the slow-to-change industry has waned. Most of the labor shortage will be felt in the regions where rebuilding is necessary, but the demand and lack of experienced tradespeople may cause pricing increases across the nation.

Beyond a limited candidate pool, construction firms are also faced with retention woes. Firms are spending more on training, employee compensation, technology, and safety programs. Formal internship programs are also on the rise to groom the next generation of workers and reduce the burden on established employees.

While there are definite hurdles for the year ahead, advanced preparation and planning may help offset additional cost firms will face. For more information on implementing cost-saving strategies, contact Aronson’s Construction and Real Estate team at 301.231.6200.