It’s become quite fashionable in the construction industry to blame the rising cost of new apartment building construction on a shortage of skilled and unskilled labor. To be sure, the lack of available labor is in part responsible for increasing costs and late completion dates. But, right alongside these reasons, the increasingly difficult to work with designs along with the many changes in regulations are also among the top reasons for late delivery and overrun costs.
The Constant Evolution of Design
One of the biggest reasons for the continued rise in apartment building construction costs, according to the National Association of Home Builders is the high cost of materials. But, to a certain extent the apartment industry has only itself to blame. This same report shows that OSB prices have gone up by 30 percent, while softwood lumber has gone up by 15 percent.
While the cost of raw materials, does in fact represent a significant portion of the total cost of construction, in recent years there has been a change in what renters want in term of amenities. Today’s renter wants more amenities, higher quality appliances, high-end finishes inside and out. The goal, to make each apartment more like a single-family home.
The higher the demand for these “luxuries” continues to go, the higher the cost of construction. And it’s not just fancier appliances and high-end finishes that people want. They want the latest in faux finish, the hottest new technology and units that ensure maximum connectivity to the web. Most renters now want expensive cabinetry loaded with features and of course fancier fixtures everywhere. The list seems to go on forever, and the longer it gets, the higher overall construction costs are going to go.
On top of all of this, stricter building codes are not only slowing down the construction process, but adding to costs as builders work to ensure each project meets the latest codes. Even lenders are getting in on the action by taking a far more critical interest in how any apartment they finance is being built.
The Labor Pool
Where once there might have been a surplus of both skilled and unskilled labor in the construction industry, such is not the case. Today, many construction companies are suffering under an extreme shortage of construction workers. When you have an extreme shortage of available labor, the cost of labor goes through the roof as construction workers find themselves in a position to demand higher wages.
According to a report published by the Associated General Contractors of America in January 2018, the average hourly wage for a construction worker is $29.24 up 3 percent from the previous year. When you add this to the cost of raw materials, it becomes much easier to see why spiraling construction costs are having a significant impact on the number of new multi-family housing units and why housing in certain areas of the country like Southern California is becoming that much harder to find, further exasperating the problem of skyrocketing rents.