Construction Sees No End to High Materials Costs, Labor Availability
The lack of available labor has been a larger factor in project delays than the materials.
There’s been a “steady return of demand for projects across most sectors of commercial work,” says a new construction outlook report from JLL for the second half of 2021. But that success brings a problem of “above-average increases in construction costs.”
“Through August, average final construction costs for a commercial project had increased 4.5 percent, and total cost growth by year end is likely to surpass 6 percent,” the report reads. “A similar level of cost escalation, in the range of 4 to 7 percent, is expected into 2022,” though the materials component of the estimate is “the lowest confidence forecast due to the wide range of inputs and global supply chains bucketed into a single category.”
In the 12 months before August 2021, average material prices were up 23%. The up-and-down shifts in material prices are “unprecedented in contemporary history,” the report states. Increases in lumber and steel prices are the largest since at least 1949, according to government data that doesn’t go back further. Aluminum prices have increased the fastest since 1995, plastic since 1976, and copper since 2010.
While materials prices have been high and availability often scarce, the effects of labor on project pricing and timing have also been significant. Wage growth has “kicked into high gear” and the lack of available labor has been a larger factor in project delays than the materials. JLL expects labor conditions to worsen through 2022.
According to JLL analysis of U.S. government data, the unemployment rate in construction was 4.6% in August 2021, with total employment in the field of 7.4 million, which was significantly lower than the overall 5.2% rate.
From August 2020 to August 2021, material costs rose 23.1% and labor wages were up 4.46%. Non-residential construction spending was down 9.5% on an inflation-adjusted basis and residential was up 7.6%.
Those looking for a true rebound in non-residential construction will likely have to wait until the spring or summer of 2022, given the usual slower winter months and uncertainty about the Covid-19 Delta variant.
As for the potential impact of the infrastructure spending bill currently in Congress, “much of the spending, and therefore the cost impacts, will occur in years 2 to 6 after passage rather than right away.”