This Special Issue Brief was prepared for the American Seniors Housing Association by Larry Graeve, Senior Vice President of The Weitz Company. For additional information, please contact:
Inflation continues to be a concern for projects in every region of the country. One of the driving factors is the labor shortage. Various sources now indicate 70% to 80% of contractors have difficulty finding qualified labor to support construction projects.
While some anticipate modest inflation in 2017, these estimates are often based on commodity pricing and standard labor increases, and may not account for other factors such as labor risk.
In visiting with various subcontractors, they are adding contingency dollars to cover overtime risk and adding other pay incentives to maintain an adequate labor force and keep projects on schedule. The true measure of inflation is the Selling Index, which represents the amount end-users pay. The average annualized Selling Index for the three firms noted in the Engineering News Record (ENR) is 7.2%. Our indications are slightly lower and we project a 5% to 6% inflation rate for the next 12 months.
*Full Burden: Costs are full burden and include general conditions, insurance, tax, bond and fee, but exclude site construction costs. The above costs are based on a city index of 100. Each city carries a different index, for example: New Orleans, LA has an index of 86.0 which translates to a cost range of $112 – $144 per sf for Independent Living; Chicago, IL has an Index of 119.9 which translates to a cost range of $156 – $200 per sf for Independent Living. These indices coupled with local market conditions are essential when comparing overall pricing.
Mid-Level: Generally wood-framed with standard amenities and finishes, typically targeting the moderate income senior.
High-Level: Generally steel or concrete construction with high-end finishes and luxury amenities, typically targeting the higher income senior.