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Q & A

Here’s Answers to some recent search terms. I hope you found what you were looking for, but I found these searches deserved an answer.

Q > Will material prices go down in 2020 or 2021 due to the pandemic?

A > Do not expect material prices to decline. Only twice in 50 years have we experienced construction cost deflation, 2009 and 2010. That was at a time when business volume was down 33% and jobs were down 30%. Currently business volume and jobs are down 10% and by mid-2021 are forecast down 15%.

Q > What would a 100 million project built in 1983 cost to build in 2020?

A > From the post “Construction Inflation Index Tables” see the cost index tables. For a nonresidential building the 2020 index is 115.1. See the plot from 1967 to pick up an old data point such as 1983. 1983 index value is approximately 32. Then, 115/32 = 3.59. Cost in 1983 x 3.59 = cost in 2020. Answer $359,000,000.

Q > Do tariffs affect Producer Price Index?

A > No. The PPI is for domestic products only and tariffs are on imports only, so PPI is not directly affected by tariffs. However, if domestic producers raise the prices on their domestic products to take advantage of matching the price increase imposed by tariffs on imported products, then you could say tariffs affected the cost of domestic products and that cost would be picked up in the PPI. 

Q > What is annual inflation rate for multifamily construction?

A > Low rise multifamily construction, often stick built, should use the residential inflation rate. Hi-rise multifamily is often built just like a nonresidential building; concrete and steel, glass and masonry enclosure, large mechanical systems. Only the finishes inside are different. For Hi-rise residential use the nonresidential inflation index.

Q > How do you define backlog?

A > Construction Analytics defines backlog as the $ value of work remaining to be completed on all work currently under contract. Construction Starts > Cashflow > Backlog > Spending Work under contract is jobs identified in new construction starts. Backlog does not define the amount of work that will be completed this year. For that you need all the cash flow. Backlog work could extend for several more years, until project schedules under contract are completed.

A > Census publishes historical data by market by state. https://www.census.gov/construction/c30/historical_data.html
Census does not publish this data in the monthly releases. Market studies look ahead can be prepared utilizing a source such as Dodge Data & Analytics construction starts. Starts factors and cash flow curves are applied to the data to result in a market spending activity analysis. Construction Analytics provides market studies for U.S. MSAs, (metropolitan statistical areas) as a consulting effort.

Q > Inflation rates for US cities, states or international cities

A> In the Construction Inflation Index Tables there are links to several major indices that do track an index for a few US cities. There are also links to international indices. I’m not aware of anyone tracking construction inflation by state. Construction Analytics can provide market studies and predicted MSA inflation rates for US cities or metro areas as a consulting effort.

Q > Long term inflation rates

A > There is a discussion of long term inflation rates in Inflation in Construction 2019 – What Should You Carry?

Long term rates over a period of 10-20 years are normally about double consumer price inflation (CPI). Since 1999 but taking out 2 worst years of recession (-8% to -10% total for 2009-2010), the 20-year average inflation for nonresidential bldgs is 4.4% and for residential is 5.1% Average long term (30 years) construction cost inflation is 3.5% even with any/all recession years included. Since the recovery began in 2011, nonresidential buildings inflation has averaged 3.75% and residential inflation has averaged 4.75%/yr, however nonres bldgs peaked at 5.2% and residential peaked at 8.0%. Since 2011 the Federal Highway Index averaged 3%, but four of those years were over 5% The FHWA Hiway index peaked in 2018 at 6.6%.

Q > Cost Inflation for next 10 years?

A > Beyond national data for the next 3 to 5 years, there is no data to support a forecast of inflation after that. The best information to use at that point is the long-term average non-recession, which is 4.4%, but take note of differences in rates above, res, nonres, nonbldg. Whenever trying to look out beyond spending data, it’s best to use the long-term average rate of inflation.

Q > How do I apply inflation factors to escalate the cost of a building?

A > At the end of this post Construction Inflation Index Tables is a paragraph that explains How to use an index.

Q > Material prices and labor rates

A > Construction Analytics does not list individual material prices or trades labor rates as that would entail thousands of entries. CA tracks the change in material prices in the PPI Construction Materials Inputs Index and the overall change in inflation in the Construction Inflation Index Tables

Q > What is productivity loss when working overtime?

A > This article helps with an example to calculate the lost time and excess cost due to nonproductive overtime losses. Construction Overtime – A Common Miscalculation

Q > a 5 year economic forecast for construction in the USA

A > As described above in the  Q > state by state construction forecasts, data can be obtained to prepare a forecast 5yr look ahead, but there are cautions to be aware of when looking out past three years See Reliability of Predicted Construction Forecast Data

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