Report finds 3.6% jump in home building costs

Real Estate Weekly, May 19, 1993

Home construction costs nationwide climbed a substantial 3.6 percent in the past year according to the latest update of the Marshall & Switft National Average Index. The index measures changes in construction costs in cities and states throughout the country.

The increase in residential building costs was spurred largely by increases in lumber prices, according. to Robert Crine, vice president of Marshall & Swift. The COmpany's continuing research found that lumber costs increased 41 percent in the past year. There also was a 31 percent increase in plywood prices and a 16 percent jump in concrete/masonry costs.

The Marshall & Swift National Average Index also found that commercial building costs rose 2.7 percent last year. Commercial construction, which uses a greater percentage of steel and other building products, was not as hard hit by higher lumber prices, Crine said.

The highest jump in home construction costs was found in Oregon, where the Marshall & Swift index recorded a 7.5 percent increase.

The increase in lumber prices was due to a number of factors, but the principal cause was short supply. Restrictions on cutting timber on Federal land and the closing of more than 100 lumber mills, were among the factors that contributed to the increase in costs, according to Marshall & Swift.

These increases had a direct impact on residential construction because lumber, plywood and concrete/masonry make up a large percentage of the total cost of building homes. Shortages also have pushed up reconstruction costs in areas hard hit by recent natural disasters such as the hurricane ravaged communities in South Florida. Reconstruction costs are averaging between 30 percent and 50 percent above normal - and even higher in some isolated cases. These cost increases can be attributed to the limited supply of labor and materials, particularly plywood and roofing materials.

In natural disaster areas, supply and demand problems will develop, Crine said. The sheer extent of the actual physical damage, plus the disaster's impact on the community's infrastructure, destroying or disrupting businesses and supply sources, creates an enormous demand for materials. In addition to the resulting short supplies, costs rise because of the need to bring in additional labor forces from outside the area. The Marshall & Swift index of construction costs found that Hawaii had the second highest jump in residential building costs, climbing, 6.3 percent last year. Among the other states with above average increases in home construction costs were: State Washington New Jersey Rhode Island Tennessee South Dakota Utah Massachusetts Connecticut Wyoming.