This special issue brief was prepared for the American Seniors Housing Association (ASHA) by Larry Graeve and Amy Burk of The Weitz Company. For additional information, please contact:
The construction market is still very hot and most contractors are at (or near) backlog capacity. Inflation seems to be playing a tug-of-war game. On one side, tariffs and the labor shortage continue to drive inflation upward. A recent survey conducted by Engineering News-Record indicated half the contractors and subcontractors feel the labor shortage has gotten worse in the past six months. On the other side, there is uncertainty whether the construction market will continue its record growth with economists predicting another recession is just around the corner. According to ENR’s Construction Industry Confidence Index, second quarter 2019 has dropped to 58, which is down 12 points from third quarter 2018. This lower score indicates more pessimism in future construction markets. In addition, we are nearing an election year, which adds to the uncertainty. Given all these factors, it would be wise to carry 3-5% in annual inflation for construction projects in most markets.
*Costs are full burden and include general conditions, insurance, tax, bond and fee, but do not include site costs. The above costs are based on a city index of 100. Each city carries a different index. For example, Grand Rapids, Mich., has an index of 90.5, which translates to a cost range of $145-$172 per SF for independent living while Newark, N.J., has an Index of 116.8, which translates to a cost range of $187-$221 per SF for independent living. These indices, coupled with local market conditions, are essential when comparing overall pricing.