If You Think There is No Inflation, Talk to a General Contractor

As real estate values for both residential and commercial properties continue to rise, likewise does the cost of new construction.

There are significant increases in materials costs for construction projects of all types.

The Associated General Contractors of America, (AGC) is a Washington DC – based trade association representing almost 30,000 construction firms spanning from housing construction all the way to roads, bridges, commercial properties, plants and pipelines.  With 95 chapters nationwide, the AGC is a major presence in the construction industry.  The AGC was started in 1918 following a request by President Woodrow Wilson, and as stated on their Web site, “Wilson recognized the construction industry’s national importance and desired a partner with which the government could discuss and plan for the advancement of the nation. AGC has been fulfilling that mission for the last 90 years.”  Their business activity spans from A to T (airports to transit projects and everything in between including multifamily projects, commercial buildings and housing developments).  A summary page describing AGC can be found at http://www.agc.org/galleries/news/AGC_Fact_Sheet.pdf

The AGC also reports a very unique series on materials costs for construction. The data series is titled: Percentage Change in Producer Price Indexes (PPIs) for Construction Materials, Structure Types & Subcontractors.   The following table shows just a few of the changes in costs in the 12-months ending April 2013:


While some costs did decline, the materials listed above are significant components to new commercial and residential projects, subdivision developments and construction in general.   To examine the entire costs series provided by AGC for April 2013, click http://www.agc.org/galleries/news/PPI_Tables_201304.pdf

If you were thinking that you might just buy a new property to avoid existing home price increases, think again.  And for those that had previously purchased commercial and multifamily properties in recent years, congratulations, since the cost to build a property to compete against yours has escalated significantly.

The bottom line is that real estate values for existing properties will continue to escalate given supply and demand issues, and that the cost to build new competing properties is rising significantly.  Values, costs and rents will continue to rise.  And the costs for infrastructure in communities continues to increase significantly.  Hope you general tax base increases rather than the actual tax rates.


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