Labor costs driving construction cost increases

Labor costs driving construction cost increases

The cost of construction has been rising more in the last few years for both materials and labor. However, of the two, the cost of labor has been rising faster than the cost of building materials in some areas of the country and there is a greater range of labor costs nationally than of materials costs. One of the reasons for this is the labor shortages that have been a concern for the construction industry for several years. When the housing recovery started up, many of the skilled workers who had left the industry did not return. Skilled labor positions have gone unfilled, which increases the demand for those workers who are available.

Some of the increased labor costs over materials costs can be attributed to cities/regions where the shift has been from new construction to more renovations. This shift occurred as the higher cost to build new homes in these areas priced out some potential buyers. This resulted in more renovation in those markets, increasing demand for labor.

Construction materials are priced as commodities and their costs do not vary much nationally beyond the differences in the costs to transport them. Labor costs are driven by local markets and local economies. Labor is not as transferrable (as materials are) and the labor costs tend to adjust to local conditions when workers move. A recent construction cost study analyzes these issues in What’s Up With Construction Costs?

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