Rising Construction Costs: What Your Company Should Do Next
The construction industry is built with a strategy in mind: assembling anything from the ground up takes time, foresight, and a reliance on tried-and-true methods. But recent increases in material costs have required construction companies to reconsider the building blocks of their business. In the Bay Area especially, where there is a high demand for new housing and commercial buildings, the construction industry has had to adapt to handle this increase in pricing. Here, we’ll look into the reasons behind the rise in construction costs, and offer practical solutions for meeting the new demands made by the market.
Behind the Wave: The Causes of Rising Material Costs
Companies in any industry have to take rising costs into account. While the construction industry is no exception, data shows that costs for nonresidential building construction markets have been rising steadily since 2014. In 2018, construction material prices increased almost 10% from the previous year, with key materials rising even more dramatically: the cost for crude petroleum rose by 49%, iron and steel went up 14%, and softwood lumber jumped 23% from the year before.
A large factor in the increase in material costs is international trade considerations. Higher steel and aluminum tariffs, as well as a 20% increase to the tariff on Canadian lumber, have impacted U.S. construction companies. A 2018 tariff of 10% on $200 billion worth of Chinese imports is also making it more expensive to acquire building materials through international trade, and some firms may find themselves on the hunt for new suppliers.
Riding the Swell: The True State of the Industry
For many companies, increased material costs cannot be passed along to the client; they must be absorbed by the business. Fluctuating profit margins and stalled or even incomplete construction projects are one of the more frustrating consequences of this equation. But businesses should avoid jumping to conclusions about what the rise in material costs means for their company. Experts from Associated Builders and Contractors see anecdotal evidence of stalled projects contradicted by a ramping demand for construction services: public construction spending has increased due to improved state and local government finances. Necessary rebuilding after the storms and wildfires that ravaged California in 2018 is also keeping construction companies busy. While it is possible that a global economic slowdown will affect the market, companies can still take steps to protect their finances and stay in the black.
Assessing the Tides: How to Respond to Rising Construction Costs
One of the best ways to make sure that your business proactively handles the rise in material costs is to turn to technology. Building information modeling (BIM) software can streamline the construction process, projecting costs and assisting teams in hitting crucial deadlines. Modular construction can also help companies economize the materials they use, ensuring efficiency and eliminating on-site variables. Project management software will keep your workforce aligned on tasks and safeguard against mistakes or delays that occur when there are gaps in communication. Optimizing unrelated aspects of your business can help balance out the stressor of increased material costs.
If you’re starting out on a project that requires a construction partner, ensure you’re connecting with a company who has a solid understanding of the current industry climate, and can provide insights and expertise to your existing team. In addition to leveraging technology and strategic partnerships, companies can bolster their productivity by finding the right people for the job. With unemployment at an all-time low, construction companies have been hard-pressed to locate qualified workers. Forward-looking companies would do well to build their hiring network. Target training programs in your area; Northern California Construction Training is just one example of an organization equipping the next generation of construction talent. Offer internships to bring in skilled workers who can continue with you post-graduation, or invest in internal employee training. Whatever option you choose, strategic hires and taking good care of employees will help keep your business in the best position to deal with rising construction costs.
While increasing costs can eat into a company’s profit, construction business in the Bay Area is rising right alongside the ticket price of building materials. Wherever your business is located, make the most of software solutions, alternative building methods, and truly talented workers to set yourself up to weather any storm.
Our dedication to quality and supporting innovation has placed us at the forefront of the Northern California construction industry since 1978. Contact us for a quote, or to learn more about how we can serve you.
Image Credits: Shutterstock / Flamingo Images, Shutterstock / VALERIY SHEYKIN, Shutterstock / JL-Pfeifer
