The Dirt Magazine - Issue 10

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issue 10 │ 12 │ Rising Costs in the Construction Industry Increased costs in any industry can bring with them negative consequences, such as a decrease in demand. Recently, construction costs in several countries have been on the rise. United States: An About-Face Interesting things are going on in the United States. After two years of construction material prices falling, they are suddenly on the rise. The Bureau of Labor Statistics said between February 2016 and February 2017, material prices increased 4.8 percent. Also, the producer price index for goods used in construction grew by 4.4 percent between March 2016 and March 2017. Different firms are responding to this phenomena in their own ways, but many are simply absorbing the increased costs for fear of losing clients. Other construction firms have decided to pass those higher materials costs directly to customers. Surprisingly, they have reported zero pushback. That would indicate demand is high and robust. Just how much material costs have risen in the United States depends on which material you are looking at. For example, an ongoing dispute between Canada and the U.S. – caused by differing ways timber is harvested in the two countries – has triggered a spike in softwood lumber prices. Some price increases are to be expected in any market, and so far none are big enough to cause serious concern. Materials are not the only cost rising in the American construction industry. Labor costs are also climbing, with a 2.4 percent increase reported for last year. Political Factors We are still seeing how "Brexit" will affect the British economy and Europe, but already we know it's creating a boom in the construction industry. Total output is pegged to increase 1.3 percent in 2017, 1.2 percent in 2018, and a whopping 2.3 percent in 2019, per forecasts from the Construction Products Association. Apparently, leaving the European Union is fueling big spending on infrastructure. This is thanks to £300 billion set aside in the National Infrastructure and Construction Pipeline. Among the sub- sectors poised to see a big impact are water, rail, and energy. Other spending is fueling strong demand in other sectors of the British construction industry. One of the strongest is homebuilding. British citizens want private homes, triggering a projected 7.2 percent increase in homebuilding through 2019. First-time buyers in the market are benefitting from the Help to Buy: Equity Loan, a government loan program which is fueling much of the growth. In the fourth quarter of 2016, the program made up 39.8 percent of new home sales. While industrial and commercial construction demand has remained strong in Britain, that might taper off in the latter part of 2017.

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