A new report finds building costs are rising faster than they have in the past six years. The report from the construction consulting firm Rider Levett Bucknall said that the company’s index of construction costs in the United States increased 1.66 percent between July and October, which is the biggest three-month increase since the beginning of 2008.
Perhaps more importantly, the report found that construction starts in 2015 will rise about 10 percent – almost double the estimated growth rate in 2014. "General optimism with the construction sector has continued to rise," the report said. Rider Levett Bucknall keeps track of new commercial, residential, and other types of construction as well.
The report attributed the increase in costs to "the improving construction financing climate and stronger commercial and residential development markets. Experts say that as markets improve, demand increases for labor and construction material, driving up their costs. The report points out that–according to the Commerce Department–the value of construction put-in-place in the first nine months of 2014 was $710.1 billion, up 6.1% from the same period in 2013."
More from the Wall Street Journal:
"Since 2001, Rider Levett Bucknall has been tracking construction costs by studying the price tag on labor, materials, overhead and other expenses. The firm, whose North American headquarters is based in Phoenix, has used that data to prepare a quarterly index.
The index, which started at 100 in April 2001, hit a record 161.11 in October, up from 158.48 in July. It was at 153.09 in October 2013.
The index, which isn’t adjusted for inflation, shows that construction costs are rising faster than the inflation rate. The Labor Department earlier this month said its index of consumer prices was just 1.3% above its year-earlier level in November. The construction index was up 5.2% during that same time period.
But Julian Anderson, president of Rider Levett Bucknall North America, says he doesn’t expect the pace of growth of construction costs to put a damper on activity because the price tag on real estate is rising faster than construction costs. Indeed, he said: 'I would expect that costs would have gone up faster at this point in the cycle than they actually have.'"
Honolulu and San Francisco led the 12 major U.S. markets tracked by Rider Levett Bucknall with costs rising 2.8 percent and 2.3 percent in those cities. The lowest increases were in Denver, Las Vegas, and Phoenix.