Construction Costs Expected to Increase as Much as 6% This Year

U.S. construction costs saw an average increase of 4% in 2023. Those costs are set to increase by 3-6% in 2024, according to a report by Currie & Brown.

While construction costs are escalating across the nation, there are variations between major cities. Construction costs in Chicago are predicted to rise 3.5% in 2024, but those same costs in Phoenix are expected to spike 6%. As a result, a $10 million project constructed in Phoenix in 2023 will cost $10.6 million this year. That same project built in Chicago will cost $10.35 million.

The 2024 cost escalation for specific cities in the U.S. is as follows: Houston, 4%; Miami, 4.5%; Minneapolis, 4.5%; New York, 4%; Portland, 5%; San Francisco, 4.75%; Seattle, 4.5%; and Washington, D.C., 4.75%. Chicago and Phoenix fall at the low and high end at 3.5% and 6%, respectively.

But the U.S. is not alone in these rising construction costs. The report predicts cost increases across major international operating regions, from the United Kingdom and Europe to Mexico and Peru. While the extent of these increases varies with each market, there are some common factors affecting these increases.

Geopolitical turmoil is a major driver in increasing construction costs in the U.S. The Federal Reserve decision on interest rates will have an impact on financing for construction projects. In addition, the upcoming presidential election could impact costs and trends in the industry, too.

In addition, inflation is a factor, as well. According to Federal Reserve Economic Data, construction supplies increased by less than one percent in 2023. While modest, a 2-3% increase in construction material costs is anticipated for 2024.

At the same time, sustainability rules are tightening globally. Adhering to these new regulations may temporarily increase costs, although long-term operational cost reduction is expected.

Finally, skills and materials shortages are behind cost increases nationwide, as well. While U.S. construction activity remains strong, record-low numbers of skilled journeymen and apprentices is bolstering bargaining power for skilled labor. Consequently, a 3-6% increase in labor costs is expected in 2024.

“Managing cost escalation in the U.S. construction sector presents an ongoing challenge, albeit a familiar one. It’s time for our industry to shift from firefighting to proactive collaboration with clients in navigating this persistent trend,” said Rachel Personius, associate director of Curtis & Brown.