Construction Costs are Rising


One of the most pressing concerns facing built environment professionals within the last five years or so is the escalating costs of construction. It might seem like a branch of inevitable inflation, but this issue isn’t just a passing trend that will fade as time goes on like overpriced tumblers or baggy denim. Rather, the rising cost of construction is a complex issue rooted in several intertwined factors that demand attention and thoughtful consideration. 

By all accounts, we should be able to grow better and bigger at a faster and less expensive rate as technology advances, but somehow that isn’t the case. Construction projects that used to take months are now taking years to finish. As an example, in the early 1930s, California designed and built the 8-mile Bay Bridge in a mere 5 years. And workers did it ahead of schedule and for $78 million, which was well under budget. 

Construction is Taking Longer 

Decades later, when the seismically shaky 2-mile eastern span of this bridge needed to be replaced, California took five years just to figure out what the new span should look like and design it. Construction is taking more than twice as long, and the price tag is now $6.4 billion –4 times higher than engineers estimated.  

High interest rates are compounding the effects of spiraling construction costs and forcing developers to scrap, significantly delay or shelve a growing share of projects across the U.S. 

Navigating the Red Tape 

One of the primary culprits contributing to the rising cost of construction is overregulation —note I said over regulations. While regulations are crucial for ensuring safety standards and environmental sustainability, an excess of bureaucratic hurdles can significantly inflate project costs and timelines. Electricians, plumbers and contractors often find themselves swamped with permits, codes, and compliance requirements that vary depending on location. And the list of regulations, codes, and rules only continues to grow every year. 

Consider yourself a contractor who needs to install a new electrical system in a commercial building. Beyond the technical expertise required, navigating through layers of regulatory approvals can add weeks or even months to the project timeline. Each delay translates into increased labor costs, prolonged equipment rentals, and potential penalties for missing deadlines. Plus, the cost of compliance itself can be substantial, as obtaining permits, conducting inspections and meeting specific building codes all cost a fee that isn’t always cheap. Small to medium-sized contractors may struggle to keep up with the administrative burden and associated costs, which ultimately get passed down to consumers.  

“Overregulation is exacerbating the nation’s housing affordability crisis and that policymakers need to take bold steps to reduce or eliminate unnecessary regulations that will help builders increase the production of quality, affordable housing to meet growing market demand,” says National Association of Home Builders Chairman, Chuck Fowke. 


Skilled Labor Shortages Are Making Things Worse 

Another critical factor influencing construction costs is the shortage of skilled labor, which I covered a bit in my blog about the job market for BEPs. I note in that article that as experienced electricians and contractors retire, there's a noticeable gap in the workforce that poses a significant challenge for the industry. The demand for skilled labor continues to outstrip the supply, driving up wages and project costs. 

Skilled electricians and construction workers are indispensable for ensuring safe installations. The issue is that attracting and retaining skilled laborers has become increasingly difficult, leading to a competitive marketplace where contractors now must offer higher wages and better benefits to secure the kind of talent that will get a job done well.  

“There needs to be better compensation for the physical work in order to get younger people interested,” one Reddit user in the "antiwork" subreddit says. “There are way too many people pushing the trades as instant success without bringing up the fact that this is hard work that isn’t paid nearly enough for the physical sacrifices. Yes, you can make a lot of money, but most construction workers are lacking in medical benefits and assistance, making this trade less desirable for young people.” 

With fewer workers available, projects may experience delays, further increasing costs and disrupting schedules. To make matters worse, more money is then thrown at projects to get them finished faster. Some of these insanely high project costs are leading to strikes which only delays processes even more.  

Rising Raw Material Costs

A third major contributor to escalating construction costs is the rising prices of raw materials. Whether it's copper wiring, steel for structural components, or advanced composite materials for insulation, fluctuations in material costs can have a profound impact on project budgets. These price hikes are often influenced by global supply chains and shifts in market demand, which is evident in the current economic climate of the U.S. 

For electricians and contractors specifically, raw materials represent a significant portion of project expenses. Even just a slight increase in material costs can lead to budget overruns if not adequately accounted for during project planning. Moreover, shortages or delays in the delivery of essential materials can further disrupt construction schedules, compounding the financial strain on contractors and their clients. 

In recent years, the ups and downs of raw material prices have made it challenging for contractors to estimate project costs accurately. What might have been a stable budget at the start of planning can quickly balloon due to unforeseen spikes in material prices. This unpredictability undermines financial forecasting and makes it difficult for contractors to maintain profitability. 


Is There a Solution?  

Electricians, contractors, and other BEPs have the best inside look at this market, especially those who have been operating within it for years. Witnessing these rising costs firsthand gives them a unique opportunity to drive meaningful change by embracing innovation and fostering collaboration within each industry. While this “friendship and teamwork are the key,” concept might sound better on paper, it could be a valuable tool, even if for the smallest cost reductions.  

Prefabrication and modular construction methods can accelerate project timelines while reducing onsite labor requirements—a valuable advantage in the face of skilled labor shortages.  

Unfortunately, regardless of the profound advancements made in the BEP technological space, modern technology hasn't done much to speed up construction—if it did, I wouldn’t be writing this. Sure, we can use advancements such as Building Information Modeling (BIM), prefabrication, and modular construction, as they offer promising avenues for improving efficiency and reducing costs. But we haven’t truly been able to overcome inertia—heavy things are still heavy and difficult to maneuver. And much as we might imagine a lot of work could be done by computer-controlled robots, the construction landscape is still mostly done by humans. 


Possibilities for Change 

While unfortunately, this rise in constructions costs doesn’t seem to be going anywhere anytime soon, the industry isn’t hopeless. In a study released last month, the Associated General Contractors of America and Sage Construction & Real Estate found 77% of construction firms stated they are having a hard time filling their craft positions, but that they continuing to focus on building a well-paying and stable environment for millennial and gen z workers looking to join the trade.  

By addressing issues such as overregulation, skilled labor shortages, and fluctuating raw material costs, stakeholders and built environment professionals can pave the way for a more resilient and cost-effective construction sector. 

Overregulation: Streamlining regulatory processes without compromising safety is key. Advocating for clearer, standardized regulations across regions can reduce ambiguity and streamline approvals. Encouraging digital platforms for permit applications and inspections can also expedite processes and minimize paperwork. 

Labor Shortages: Investing in vocational training and apprenticeship programs is crucial for nurturing the next generation of skilled electricians. Collaborating with educational institutions and industry associations to develop tailored training programs can help bridge the skills gap. Additionally, offering competitive wages, benefits, and career development opportunities can improve retention rates among existing skilled workers.   

Material Costs: Establishing strategic partnerships with reliable suppliers can mitigate the risks associated with fluctuating material costs. Negotiating long-term contracts or purchasing agreements can provide stability in pricing and ensure a steady supply of essential materials. Additionally, exploring alternative materials or technologies that offer comparable performance at a lower cost can be a proactive approach to managing expenses. 


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