As momentum for construction projects in the United States continues to increase, so do construction costs, according to Rider Levett Bucknall’s (RLB) Second Quarter 2022 Construction Cost Report.
Between Jan. 1 and April 1, the national average increase in construction costs was roughly 2.4% (7.5% annualized), and RLB’s National Construction Cost Index (NCCI) jumped from 218.06 to 234.42 on a year-over-year basis. The NCCI represents the average escalation of costs across 12 U.S. cities, representing the hypothetical change in bid pricing across cities measured that quarter.
Chicago, Denver and New York all experienced increases above the quarterly national average—4.1%, 3.95% and 2.67%, respectively. Locations below the national average included Boston (2%); Honolulu (1.52%); Las Vegas (2.03%); Los Angeles (2.14%); Phoenix (2.17%); Portland (2.28%); San Francisco (1.57%); Seattle (2.26%); and Washington, D.C. (2.11%).
Construction costs were exacerbated by supply chain problems, inflation, rising gas prices and workforce shortages, according to Julian Anderson, president of RLB North America.
“The proverbial ‘help wanted’ sign seems to be the sign of the times in our industry, with job openings at an all-time high and the unemployment rate at an all-time low in April,” Anderson wrote. “The workforce shortage is pervasive through every aspect of our industry right now—just one piece of a larger confluence of challenges for the industry.”
Construction job openings through the end of April totaled 494,000, a 40% increase year over year and “above and beyond” the 455,000 workers that were hired during the month, he wrote. Roughly 36,000 new employees joined the construction workforce in May—representing just 7% of the open positions.
“This workforce shortage is hindering the industry’s ability to maximize construction growth,” Anderson wrote.
In April, spending on nonresidential construction fell 0.2% from March and public construction spending declined 0.7% for the month. The main culprit was the workforce shortage, as April unemployment for jobseekers with construction experience was at a record low of just 4.6%.
The federal Infrastructure Investment and Jobs Act (IIJA) is expected to somewhat ease the worker shortage by creating nearly 900,000 more jobs, more than half of which will be in the construction industry, he wrote. With recent economic activity and the cyclical nature of the construction industry, the timing and size of the IIJA-related employment needs may change in the coming months.
“It’s going to depend on two main factors: first is the timing of not only the IIJA projects, but also those in the broader construction industry,” Anderson wrote. “The second factor is the impact of growing inflation rates, which will likely impact the value of the IIJA’s allocated funds, resulting in a change to the size, scope and number of construction projects that come to fruition.”