When trying to forecast where construction costs areheading, it’s helpful to look at a comparison between the latest costs - of construction and the inputs that go into construction, such as materials and services.The relationship between the trends of these two costs can indicate a tension that may increase or decrease the future cost of construction.

As seen in this chart, the input costs for construction dropped at the outset of the COVID pandemic as many projects were put on hold or delayed. As the construction market adapted to the “new normal” and continued to build, the pandemic’s negative effects on the supply chain drove a steady increase in the input costs of construction. The overall cost ofconstruction followed suit several months later and has been increasing through the end of 2022.

Fortunately, the cost of inputs to construction peaked inthe middle of 2022 before settling into a plateau during the last several months. This has resulted in increases to the cost of construction that are more in line with the historical trends we saw before the pandemic. It’s important to note that the input costs of construction make up only part of the total cost of construction and notably do not include the cost of labor. The continued strong demand for construction labor creates an upward push on the cost of construction and offsets the decreases that we see in the input costs.

Another important point is that the data above represents an aggregate across the industry, and the pricing trends of specific scopes of work can vary widely from the aggregated number. Below are some of the current exceptions we are seeing in the market:

- The cost charged by concrete contractors has dropped 3.0% in the last seven months. This trend may not hold since someof the input costs to cast-in-place concrete such as steel reinforcing steel and ready-mix concrete have increased over that same period. (Jan. 2023 –Jul. 2023)

- The cost charged by electrical contractors has stabilized in the last few months due in part to a decrease in the cost of copper wire and cable by 5.7%. This does not mean the lead times for electrical equipment have improved, which are still as much as 92 weeks for generators (>1MW) and 55 weeks for 4000A+ breakers. (Jan. 2023 – Jul. 2023)

- In the opposite direction of electrical contractors, the cost charged by plumbing and HVAC contractors has increased 1.9% over the last seven months due in part to an increase in HVAC equipment by 2.5% over the same period. (Jan. 2023 – Jul. 2023)

- Steel mill products have seen a cost increase of 3.6% in the first several months of the year but a recent drop in the costs of iron ore and iron/steel scrap has contributed to the cost of steelmill products dropping close to where it started the year. (Jan. 2023 – Jul. 2023)

As always, the best way to navigate this dynamic market isto work closely with Austin’s preconstruction teams to create a project-specific plan based on your budget and schedule needs.