Construction Costs and How to Manage Them

January 6, 2019

 

Since the economy rebounded from the Great Recession, rising construction costs have become a hot topic in the real estate community, particularly here in Colorado, where growth has outpaced the national average and it seems like a new building goes up every day.

 

That growth has resulted in higher construction costs for two reasons. The first, most obvious reason is a labor shortage (the downside of an otherwise welcome sub-3 percent unemployment rate). However, the second, perhaps less vocalized truth is that the local construction market has worked for so long at such an exhausting pace that it takes more to motivate them to keep it up. During the downturn, we saw construction firms mostly surviving by dramatically lowering their labor costs. Those reduced rates drove everyone to work extra hours in order to earn enough revenue to remain open. As the economy returned to a more robust position, sometime in 2012, we saw prices return to a more typical position. The difference is that here in Colorado, the economy rebounded so quickly and strongly that the construction industry continued to work those hours to keep up with our market expansion. For the last 10 years, local construction teams have either been working overtime to survive or working overtime to service a dynamic, robust economy. And with almost $5.5 billion in projects on the horizon, including several large-scale projects such as the major expansion at DIA, it’s no wonder the labor market is overworked. Eventually those costs had to rise to make it worth the breakneck pace.

 

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