Thoughts on Construction Costs

How have construction costs risen in the last couple of years?

in 2004, the National CPI increased approx. 2.5% while construction costs increased approx. 10%.  In 2005, the National CPI rose 4.9% while Construction costs for single family residences rose at a slightly higher rate, although certain costs of specific construction material products increased substantially. Certain products such as asphalt, paving blocks, concrete, gypsum products and copper have increased at rates ranging from 10% to 19%,

What is driving the recent increasing in construction costs?

The costs of construction labor increased 5% to 10% in 2005.
Energy prices across the board rose 17% in 2005
Bulk Cement rose 11.7% in 2005
Ready-mix concrete increased from $95 to $110 per cubic yard
Reinforcing steel increased from $.75 to $.90 a pound

Although lumber increased approx. 16% during the 12 months ending September 2004, the cost of lumber has actually decreased the last 12 months, and since lumber is a major component of the cost to construct residential housing, this has moderated the cost of constructing a single family residence somewhat recently. Although the overall cost to construct a home in Southern California has increased significantly during the last two years.Increasing demand for such construction products as steel by China and India has led to substantial price increases over the last two years. Cement is costly and in short supply in some regions partly because a stiff anti-dumping duty makes plentiful Mexican cement unavailable and forces suppliers to bid for scarce supplies of cement from Asia and Europe. Interestingly, Hurricane Katrina did not have a material impact on most building supplies, Katrina did interfere with imports of cement and natural rubber, and the hurricane damaged plants that produce gypsum, lumber and plywood. Natural gas prices are currently about 60% higher than a year ago. That affects the cost of a variety of construction plastics that use natural gas as a heat source during production. This affects PVC plastic pipe, in particular. Brick and glass use natural gas for heating and drying during production, and their weight also has led to higher transportation costs due to the fuel price increases. Both these products will probably have higher prices in 2006. Gypsum prices (gypsum is used in drywall wall board) rose more than 10% in each of the past two years as strong demand from single and multi-family production exhausted capacity. More production is expected to come on line in 2006. With increasing production capacity for lumber and plywood expected to come on line in 2006, lumber prices should be flat to 10% lower in 2006 compared to the comparable period in 2005.

How much does it cost to build a home or an office/industrial building now?

The average cost to build a single family residence can range over a considerable amount depending on the custom features, type of construction, etc. An example of this type of fluctuating costs depending on the quality of the work involved can be seen in my page describing 
home improvements on my website at  ( you can also see the approx. cost of various type of home improvements such as adding a bedroom or bath, a kitchen remodel, etc. ) .. Homes can cost from $200 to over $300 per square foot to construct. The average office shell and core construction costs, before tenant improvements has gone up from approx. $85 to $110 per sq. ft. in the last year. The average tilt-up industrial building has gone from $35 to $55 per sq. ft. The average parking garage has gone from $9,500 to $12,000 a car parking space. The average hospital building has gone up from $300 to $450 per sq. ft.
Source: Association of General Contractors  

About mmegowan

I am a realtor with Remax Estate Properties in Palos Verdes Estates. Visit my website at
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