RLB cost report shows construction costs rising due to stunted U.S. construction industry

March 22, 2015.

Construction costs continue to rise

The Rider Levett Bucknall (RLB) First Quarter 2015 Construction Cost Report shows that construction costs continue to rise nationwide, partly because the overall U.S. construction industry in 2015 is smaller than it was prior to 2008, when the recession began.

“In areas where construction activity is picking up the most, the smaller-sized industry is struggling to keep up with demand,” states Julian Anderson, president of RLB in North America. “Although the actual costs of labor and materials continue to increase slowly, the growing demand and limited supply of subcontractors has led to upward pressure on bid prices in busy areas.”

Construction cost inflation rises, consumer price index falls

RLB’s research also indicates that U.S. construction cost inflation continued to rise in the first quarter of 2015 at an annualized rate of 4.64%. In contrast, the Consumer Price Index (CPI) for all urban consumers fell at an annualized rate of 4.03% in the same period, due to a plunging energy index triggered by falling gasoline prices.

The firm, citing the U.S. Bureau of Labor Statistics, reports that the large fall in the CPI in January was attributed to a 9.7 percent drop in the energy index which was, in turn, caused by an 18.7 percent drop in the gasoline index, the sharpest in a series of seven consecutive declines. The energy index would have risen 0.1 percent if the gasoline index had remained unchanged.

According to the U.S. Department of Commerce, construction put-in-place during December 2014 was estimated at a seasonally adjusted annual value of $982.1 billion, which is 0.4% above the revised November estimate of $978.6 billion. The December 2014 figure is 2.2% above the December 2013 estimate of $961.2 billion. The value of construction in 2014 was $961.4 billion, 5.6% above the same period in 2013.

A 5.5% national average increase in construction costs

RLB tracks construction costs in 12 major U.S. cities. From January 1, 2014 through December 31, 2014, the national average increase in construction cost was approximately 5.5%. Honolulu experienced the greatest annual increase showing escalation over 13%, while Boston, Chicago, Denver, Los Angeles, New York, Portland, San Francisco, Seattle and Washington D.C. experienced more modest annual increases between around 4.1% and 6.1%. Las Vegas and Phoenix experienced slightly lower annual increases around 3.6%.

“We are seeing the effects of the lack of skilled labor that we have been observing for the past eighteen months,” adds Anderson. “Increasing construction activity continues to deplete available resources. This issue, in particular, is driving up costs in certain areas around the country and must be addressed in order to find a long-term solution.”

About the RLB quarterly construction cost report

RLB reports on the comparative cost of construction in 12 U.S. cities on a quarterly basis, indexing them to show how costs are changing in each city in particular, and against the costs of the other 11 locations.

Together with international and national cost compendia, the cost research equips clients with complete and relevant information, to assist in key business decisions.

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About RLB

With a network that covers the globe and a heritage spanning over two centuries, Rider Levett Bucknall is a leading independent organisation in cost management and quantity surveying, project management and advisory services.

Our achievements are renowned: from the early days of pioneering quantity surveying, to landmark projects such as the Sydney Opera House, HSBC Headquarters Building in Hong Kong, the 2012 London Olympic Games and CityCenter in Las Vegas.

We continue this successful legacy with our dedication to the value, quality and sustainability of the built environment. Our innovative thinking, global reach, and flawless execution push the boundaries. Taking ambitious projects from an idea to reality.