Why construction costs are so high

Was at a panel discussion on development recently and rising construction costs came up.

Everyone wants to know why it costs like 30% more to build a building than it did two years ago.

There are lots of theories, including:

  • All the sub-contractors retired in 2008
  • Lots of laborers went back to their home countries (often in Latin America) as a result of our insane immigration policies
  • The tariffs are pushing up materials costs
  • Workers comp insurance is too expensive
  • Millennials don’t want to get their hands dirty in physical jobs

And lots more.

One of the panelists at our discussion was a contractor, and he had a different perspective. He said something like: “For a while there, in 2008, 2009, 2010, 2011 and 2012, you guys were sticking it to us. Now the shoe’s on the other foot.”

In other words, part of what’s going on is that contractors know there’s a ton of demand for construction services and not a lot of supply, so they’re taking the opportunity to increase their margins. And it’s a free country, so who can blame them?

That said, while we certainly aren’t immune from rising costs, we have suffered less than most, and here’s why: Our contractor relationships are LONG term. We kept those guys working in 2009, 2010, 2011, etc., when no one else was doing anything. And they know we’ll be buying lots of buildings when things get bad again. So they don’t feel like they have to kill us on price now… in a long term relationship, everyone knows what goes around comes around, eventually.