External Affairs

[Alyssa Bray]

Rising construction costs were frequently cited by our members as an issue for the 2018-19 Top Ten. Here are some of the responses we’ve received so far.

• Regulatory acceptance of new materials in construction and building techniques. Regulations  sometimes delays application of new, better, more efficient construction materials and building techniques. Alternative energy applications in new construction; for example, solar collector walls, windows, roofing itself).
• Various costs increasing:  Increasing proportionate cost of regulation, impact fees, development fees, utility hookup fees, share of infrastructure costs, and others on real estate development and costs and consumer or tenant affordability, residential and commercial.  Because it is residual in nature, land values are particularly affected.
• Construction costs: have gone up over 5% in one year. A tariff war would add to the problem.
• Constructions cost are rising faster that the ability of the market to support those increases.  This is due to both a shortage of skilled laborers and increasing commodity prices.  A 25% import tax on steel is not a step in the right direction.
• High cost of construction  – Hard to find critical trades.
• Increasing material prices – shortage of local skilled trades to meet residential and commercial demand, thereby increasing construction times.
• Highest & best use issues as land costs rise to unaffordable levels driving low cost property uses increasingly to nearby markets and outer fringes of high cost markets, eg Reno -expansion of high cost talent to lower cost markets with better state fiscal conditions
• Material price increases (particularly wood and steel) combined with the construction labor shortage (read higher labor costs) are pricing all marginal projects off the drawing board.  The combination of higher construction costs and higher interest rates are going to price a great number of projects out of feasibility.  Rents are not rising fast enough to support these higher costs.

Have any information to add? Share your comments below, and feel free to share articles and data illustrating this issue.

[Dr. Victor Calanog, Ph.D., CRE]

Definitely a topic that directly impacts real estate, particularly future development. Infrastructure spending sounds like a good idea, given the crying need for reinvestment in our roads and bridges. But should US fiscal policy be focused on expansionary measures that may widen the deficit when we may well be at full employment?  And wouldn’t infrastructure spending – unless very, very carefully executed – push construction costs even higher, potentially crowding out private investment and projects because of prohibitive costs?

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