THE COST OF CONSTRUCTION IS RISING: WHAT CAN YOU DO ABOUT IT.

Author:Moore, Cory
Position:CONSTRUCTION
 
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As I reflected content that would best benefit the NAIOP audience, I assumed you would expect forward-looking predictions concerning rising construction costs and the elements affecting them. I also consider it my (maybe more important) responsibility to identify what you can do to limit project risk while in the midst of rising material and labor costs.

Accordingly, in this article, I will provide an analysis of the facts regarding cost increases and what is driving them, and what effects they are having on project performance. I will also highlight a couple of the most common mistakes to avoid in order to pilot your projects to success.

WHAT IS DRIVING RECENT INCREASES IN PROJECT COSTS?

Primarily, labor shortages and increased material prices are driving increased project costs.

The market is robust, construction is booming, and, of course, we are all excited that Utah is growing faster than most states. Most of us would agree that this is good; and it is, except this growth is having a major impact on labor, project performance, and the cost of construction.

LABOR

The housing bust and recession in 2008 have arguably left a scar on the construction industry. While the industry as a whole has bounced back, the workforce has been notably diminished. According to the U.S. Bureau of Labor Statistics, the construction workforce went from a high of about 11.7 million in 2005 to 10.8 million in 2010, which dwindled to 10.2 million in 2016. In the meantime, the U.S. population continues to grow (an estimated 9.4% increase from 2005 to 2016) resulting in greater demands for housing, office space, healthcare facilities, and hospitality. Simply put: there are plenty of construction jobs available, but not enough workers to fill those jobs.

In addition to people leaving the industry following the recession, many factors are influencing the labor shortage. These factors include the following:

* Aging workforce

* Reduction in vocational training programs

* Generational career shift from trade to technology

* Fears of another recession

The Intermountain Region is not immune to this trend. The labor shortage has caused delays to several projects in Colorado, Nevada, Arizona, and Utah. Complicating matters, these states are also experiencing unprecedented population growth. Companies such as Amazon, Adobe, and Facebook are building or expanding in Utah, and that is attracting job seekers to move to the state. The population growth is putting a strain on the housing market, and the lack of workers is providing a challenge for the state to keep up with housing demands. While the real estate market is red hot in Utah, so is commercial development. Currently, the skyline of the state is populated with construction cranes from massive projects including the following:

* The $3.2 billion Airport Redevelopment Program at the Salt Lake International Airport

* The estimated $550 million Utah State Prison relocation project

* The $750 million Facebook Data Center project

* The $450 million 1-15 Technology Corridor project

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