Construction costs increased for 23rd consecutive month

Dive Brief:

The September 2018 IHS Markit PEG Engineering and Construction Cost Index report revealed that construction costs rose at an accelerated pace month-over-month to an index reading of 62.1 — up 3.2 points from August. This marks the 23rd straight month of cost increases. The report also indicated that costs should continue to rise during the next six months.
The subcontractor labor category marked its 14th consecutive month of cost increases, with a month-over-month reading up 5.5 points. The material/equipment cost category experienced a 2.2-point rise during the same period.
Responses from procurement executives in the engineering and construction industry, which make up the survey, said that overall costs should experience 25 months of consecutive increases, landing at a reading of 79.8, the highest level recorded since the index began in 2012.

Dive Insight:

The damage done by wind and floodwaters from Hurricane Florence will likely put even more pressure on construction costs in the Southeast U.S. as the necessary labor and materials remain scarce. Damage from Hurricane Michael, which is set to make landfall in or around the Florida panhandle this week, is also certain to increase demand for construction services, potentially pulling crews away from Hurricane Florence-related work in the Carolinas.

So, while recovery and repair will keep contractors busy for some time, the volume of work means that businesses and homeowners have to wait.

Meanwhile, some also blame the continuing trade wars around President Donald Trump's tariffs for material and equipment increases. Last month, developers leading the downtown San Diego building boom told The San Diego Union-Tribune that the 25% tariff on steel is particularly impactful to high-rise construction projects, which typically use large quantities of the material. In fact, the Union-Tribune reported that steel prices had increased 31% from January to September, a rise that won't stop in-progress projects but one that could make developers rethink future development.

This scenario is playing out in other cities as well. For example, Northern Utah officials said the steel tariff has contributed to a $25 million cost increase for a new wastewater treatment plant, forcing the total price tag to rise from $106 million to $131 million. In Seattle, some developers have reported that tariffs are one reason it's hard to price the city's current wave of condominiums for less than $1,000 per square foot.