Alfa Builders
With the Economy in the Tank, Do I Get a Discount on My Project??
There are certain building materials and contract labor that are definitely less expensive in this economy. However, there are some factors that are keeping other construction items at or above “pre-crash” levels.
The Effect on the Labor Market
The labor sector of the industry is one area where there is a definite recessionary effect on price.
Most subcontractors, whether they are electricians or roofers or concrete finishers, are feeling the pinch and have taken steps to cut their prices to levels not seen in many years. The construction boom of the late 1990’s and early 2000’s allowed most trades to “name their price” in regard to their services.
There was more work to be done than the skilled labor market could bear and prices increased as a result. Now that the housing market has come to a halt and commercial construction prospects are not much better, the upward trend in subcontractor prices has reversed course and is headed downward quickly!
If you couple the lack of work with an abundance of subcontractors who have nothing to do, and it makes for an owner’s dream when it comes to discounted prices!!
The Effect on Building Materials
The material sector is a little harder to put a finger on. There are some items that are selling for less than what they were 2 or 3 years ago. But there are also just as many that cost as much or more than they did 2 or 3 years ago.
Part of the reason is simple supply and demand. When lumber prices dip because there is a lack of demand, then the lumber mills start to close down which dramatically cuts supply. This seesaw effect creates an equilibrium in the marketplace and slows the rapid price decline.
Other materials like roof shingles escalated with the increase of petroleum prices a couple of years ago and tend to mirror the price rates of the fuel market. However, both of these material examples are also effected by seasonal and environmental factors.
When summer rolls around, bringing sunny days and milder weather, construction picks up and so do prices. Also, with the summer conditions comes hurricane season. Oddly enough, shingle prices increase at the potential for a hurricane (whether we have actually had one make landfall or not).
The Effect on Appraised Value
The unfortunate factor which indirectly affects each construction project is what the economy says the project is worth.
Yes, you may build your million dollar facility for $900,000 and save that 10%. But when the appraiser runs the numbers and says your million dollar facility is worth only $910,000 (thus cutting your equity by $90,000), did you save 10% or just 1%? That is for you to decide.
In Conclusion
As you can see, there are some significant effects of the economy on the direct and indirect costs of a construction project. But in the end, it is still a great time to build a building if you have the working capital to get off the ground!!
If you know of other economic factors that would affect construction costs, please leave a comment or feel free to contact me.
