businessReal Estate

Predictions of big construction cost declines are overblown

The pandemic hasn't resulted in a huge windfall of lower building prices in D-FW.

One predicted benefit of the pandemic has been a decline in construction costs — or at least a halt to big price increases of recent years.

The idea makes sense. With thousands of construction projects around the country being delayed or killed because of COVID-19, the costs of material and labor ought to be coming down, right?

The truth is harder to get at.

While nationwide construction costs appear to have stabilized because of the pandemic, local builders aren’t seeing huge declines in what they have to pay.

And in some cases, the costs of materials have risen because of supply constraints.

Nationwide engineering and construction costs dropped in June, according to a report by IHS Markit.

Building firms found declines in the prices of half the components in the survey.

“Construction activity has picked up over the past two months as lockdowns have been lifted. In April the construction industry lost nearly 1 million jobs; however in May, we saw nearly half of those jobs come back as restrictions were lifted and workers returned to worksites,” IHS Markit’s Emily Cowley said in the report. “Construction labor markets were facing shortages prior to the economic downturn, which will limit any downside correction on wages, though we may see cuts to discretionary bonuses going forward as delays lead to a thinner pipeline of new projects, taking pressure off of labor demand in the industry.”

D-FW construction activity had rebounded by 15% in May from where it was in March when the pandemic caused a lockdown.

Phil Crone, executive officer of the Dallas Builders Association, said local homebuilders are seeing volatility in a number of supply chains that has actually increased prices.

“Lumber in particular has increased substantially, mainly due to unexpectedly high demand getting ahead of the reopening of the mills and factories,” Crone said. “The same thing is happening with HVAC equipment, where some factories have closed due to COVID cases and there aren’t enough delivery drivers.”

Shipping problems have also led to scarcities.

“Sourcing materials from overseas such as plumbing and lighting fixtures are encountering significant delays,” he said. “What used to take three or four weeks to arrive from China now takes 10 to 12 weeks.

“Even materials from states like California that are sidelined have left builders scrambling for new sources from places that are working.”

While building activity in the D-FW area hasn’t suffered the huge declines seen in some markets, the industry still faces problems.

“Our members are navigating a ton of uncertainty,” Crone said. “Lack of certainty does not bode for construction costs.”

Steve Brown, Real Estate Editor. Steve covers commercial and residential real estate in Dallas-Fort Worth.

stevebrown@dallasnews.com @SteveBrownDMN
Real Estate

Get D-FW real estate news

Get the latest real estate news from Steve Brown and the business staff at The Dallas Morning News.

By signing up you agree to our privacy policy