2006 April 08 Saturday
Housing Construction Costs Rising

Flipping through cable TV channels looking for something to watch last night I came across a Fox TV News panel arguing about immigration and housing costs. One lady on the panel claimed that labor alone accounts for 60% of housing costs. She also claimed that union home construction workers make an average of $37 per hour while non-union make $20 per hour. Are these claims true? The 60% for labor costs seems too high to me and definitely wrong in coastal California and other areas where land costs are very high. How can materials plus land cost less than labor?

I found a neat site called Building-Cost.net where I costed out a 3000 square feet house with additional space for basement and attic (put it in Cheyenne Wyoming just for kicks) made with highest quality components, Labor costs came in at 37% of the total and that total did not include land costs or fees. I did another one in Juneau Alaska with 4000 square feet and high quality components and labor was 48% of total cost. Again, that total did not include land costs. Then I backed up a couple of pages in the browser, kept all other settings but changed the locale to Santa Barbara California. The labor costs rose to 51%. Though both the labor and materials costs were higher in Juneau and materials costs dropped more in Californian than labor costs did. Labor costs droppped from $250k to $215k. If that cost drop is due to masses of illegal alien construction workers in Santa Barbara then the savings from cheap illegal alien labor on total housing costs are pretty small.

Anyone else want to go that site and try out a hypothetical housing design to see how your costs break down? Choose the "Start Calculator" button on the first page and follow along making choices for your dream house. You might get a higher percentage of total costs from labor if you choose a different locale or cheaper components.

Materials costs are probably rising faster than labor costs as materials costs have been rising very rapidly.

The price of steel, diesel fuel and concrete, along with such materials as pipes and wiring, has driven up the costs of building a high-rise tower, said Ken Simonson, chief economist for the Associated General Contractors of America.

The cost of a cubic yard of concrete rose 10 percent to 15 percent last year and will see a similar increase in 2006, he said. The average cost for diesel fuel used in construction trucks is up 36 cents a gallon from last year. The cost of gypsum, the main ingredient in wall board, rose 42 percent since 2004, and copper used in wiring and fixtures rose about 70 percent in two years, Simonson said.

``We'd have to go back to the '70s to see prices that were rising so rapidly,'' he said, adding that strong demand, shortage of supply and a shift to a global marketplace were responsible for the increases.

Costs are way up in Naple Florida.

In a month — from January to February — the cost of cement went up 3 percent and gypsum 4.6 percent, said Ken Simonson, chief economist for the Associated General Contractors of America, which represents more than 3,200 contractors nationwide. In the last year, cement jumped 14.2 percent and gypsum 24.6 percent. Simonson added that he expects cement to continue rising by about 12-15 percent this year.

Cost increases for materials like cement and gypsum — key components in concrete — have a particularly strong impact on Southwest Florida, where the building codes require and encourage the use of concrete in construction because of hurricanes.

...

Over the past 12 months, diesel fuel has gone up 31 percent, asphalt 27 percent, concrete products 9.3 percent and plastic construction products 2 percent, according to the Bureau of Labor Statistics. Overall costs were held down by decline in steel products of 5.5 percent and wood — lumber and plywood — by 2.7 percent.

Costs have risen by more than a quarter in the last year due to Hurricane Katrina, oil price increases, and other causes.

Bottom-line cost increases for projects in the design and construction pipeline, cited anecdotally within the building industry, are running a whopping 25 percent. A project realistically budgeted at $40 million at the end of 2004 today could cost $50 million.

...

But on the supply side, the availability of labor and materials has not kept up with demand. Thus costs have risen just as economic theory predicts.

But material prices also have been exacerbated by other factors, in particular this year's devastating hurricanes that curtailed U.S. petroleum supplies. Energy costs shot up, adding to the costs of manufacturing and transporting construction materials.

Highway construction costs have risen as well.

Until 2004, highway-material costs nationally were fairly steady, with a 12-year average annual increase of 1.8 percent, according to the U.S. Bureau of Labor Statistics. But those costs rose 12.5 percent in 2005, the bureau said.

A report from Bradenton Florida shows road construction costs which might have almost doubled.

In 2003, it cost an average of $1.4 million a mile to improve 63rd Avenue between U.S. 41 and 15th Street East. A similar project now underway on 57th Avenue, also between U.S. 41 and 15th Street East, is averaging $2.76 million a mile.

"Every project we've got, we've had to revise cost estimates upward because of escalating prices," said Tim Hochuli, Manatee's project management director.

I doubt that wage increases in construction are to blame.

Did anyone else notice when a tornado recently touched down in Tennessee and injured some construction workers the construction workers interviewed on TV in Tennessee were Mexicans? I suspect blue collar workers are being denied good times from the housing boom as materials costs rise but Mexicans are brought in to keep labor costs down. What's going to happen when the construction boom ends?

Update: What I'd like to know: Which types of building materials are now selling with such high profit margins that we can expect manufacturers to scale up production to the point that prices will fall? Is there an easy way to find out the profit margins for manufacturers for doors, windows, concrete, and other parts? My guess is that wood production has long lag times for scaling up production because trees take a long time to grow.

Also, will China's growth shift up world demand for wood and other products less amenable to production increases? Will we therefore go through an extended period of higher construction costs? Will those costs be furthered worsened for the United States due to a future drop in the value of the dollar? The US trade deficit has to get closed somehow. High costs for housing in the US could be one of the ways that deficit gets closed.

Share |      By Randall Parker at 2006 April 08 12:03 PM  Economics Industry


Comments
Ivan Kirigin said at April 8, 2006 4:00 PM:

"I suspect blue collar workers are being denied good times from the housing boom as materials costs rise but Mexicans are brought in to keep labor costs down."

So someone deserves something better than the market provides? That is one of the oldest and most tired complaints of redistributionists. You would like to transfer wealth from those who were absolutely poor before coming to this country, and make the lives of those construction workers, being already not absolutely poor, cushier.

I've also found labor to be a small part of the work I've had done on my house. Either way, I'd like to see more pre-fab houses to make construction more automated.

Perhaps you've heard of Dwell Magazine. They showcase some amazing design for homes. The "Dwell Homes" are a series of pre-fab houses made by serious designers. It's pretty amazing how beautiful a house you can get for a "normal" price. So they're cheaper because they're pre-fab, but more expensive because they are better designed. A wash in price, but very obvious benefit in aesthetics.

We need more of that. It is the perfect reason why displaced labor from robotics won't hurt society: freed brains do more interesting work. Robots should work, people should think.

Check out their site:
thedwellhome.com

Bob Badour said at April 8, 2006 4:27 PM:

Ivan,

Do people have property rights? If people have property rights, isn't citizenship property? Do citizens not have a right to receive the benefit of that property?

Massive immigration is a transfer of wealth from citizens to aliens. In the case of illegal aliens, it is a transfer of wealth from law-abiding citizens to alien criminals.

Wolf-Dog said at April 8, 2006 5:04 PM:

Although it is true that land is very expensive near population centers, building a house often takes a lot of time, and little things add up. Time is the main issue here. The building contractors are probably making sure that it does take a lot of time.

However, there are some high-tech pre-fabricated houses that are wonderful, and cost of assembling such houses would be very low because it takes very little time.

Here is a great example:

domehome.com

Ivan Kirigin said at April 8, 2006 6:17 PM:

Bob,
So do high taxes violate my property rights? It isn't just illegal immigrants who violate them then...

Either way, citizenship isn't property.

Further, there is no violation of property rights in free exchange. Except for taxes, which are taken without my consent under threat of force, and other governmental action, I generally exchange with other people freely.

Bob Badour said at April 8, 2006 7:04 PM:
Either way, citizenship isn't property.

So, you don't believe you have a right to your own citizenship? I have trouble finding a logically consistent position in your posts.

There is no violation of property rights in free exchange.

But a basic property right is the right to deprive others the use of the property. Thus, those who own the nation have the right to keep others out. Once again, I have trouble finding a logically consistent position in your posts.

After you manage to end taxation, your argument for open immigration will violate property rights less, but the violation will never go away.

Dave said at April 8, 2006 8:05 PM:

"So someone deserves something better than the market provides?"

Within a country of similar people maybe not, but someone deserves better than the world wide global market absolutely.
Take Israel for example, if they lived under your kind of libertarianism their nation would face a mass-immigration of Arabs and they would lose their country within a year.
Is that what they deserve?
If the market allows it it must be ok!!!

TangoMan said at April 8, 2006 8:33 PM:

My guess is that wood production has long lag times for scaling up production because trees take a long time to grow.

Don't think of tree plantations like they have in Georgia. Instead fly over the vast forests of B.C. and get a sense of the inventory that is waiting for harvest. The bottlenecks are the processing infrastructure and issues like sustainable yield, but the latter has a lot of slack built into it.

With regard to the pricing issue keep in mind that the returns to labor have been falling, due to increasing supply, while returns to capital have been increasing. Immigration is a wealth transfer to capital owners from labor suppliers.

Also, the labor vs. materials split likely reflects things like local markets and transportation costs so a market like Santa Barbara will have lower unit cost and greater volume for material supply, and also greater price pressure from competitors, than Juneau. The result is that material costs should be lower. I have no idea what is going on between Juneau and Cheyenne.

Kenelm Digby said at April 9, 2006 4:36 AM:

Randall,
The US trade deficit won't be "closed" anytime soon by incresed housing prices, or any other quack remedy - which will only bring hardship to ordinary Americans without increasing America's productive capacity or conversly weaking Chinese industrial capacity.
No, the roots of the trade deficit are far, far deeper than that and are reducible to two cayses.All quack "economic" formulae which ignore these causes are essentially a worthless waste of time.

1/. Genetics. The higher Chinese IQ is well known and is not controversial.Also under genetic control are such characteristics as the capacity for hard work, industriousness, discipline, obedience,and the fact that the Chinese see themselves as a homogenous ethny competing against the World.

2/. The fact that the US political class has hitched itself so firmly to the free-trade bandwagon, with no dissent allowed (rather like uncontrolled immigration), and the delusion that it is a "good thing" in itself. This firmly negates any corrective action to be taken on (1) above.

Ivan Kirigin said at April 9, 2006 7:24 AM:

Bob:
"So, you don't believe you have a right to your own citizenship? I have trouble finding a logically consistent position in your posts."

No, I don't. If I commit a felony, I expect to lose certain rights -- like voting. I could even be deported. But I will not lose my right to free expression and association, etc.

That's why they are call inalienable rights. It is always wrong to lose them. I think citizenship should be alienable, because certain folks should be removed from society as punishment.


"After you manage to end taxation, your argument for open immigration will violate property rights less, but the violation will never go away."

I'm not sure if you've heard me describe Ivanistan, what I lightly call my ideal country. Taxes would be implicit, based upon funding defence, police, the courts, etc. by increasing the money supply -- with growth constitutionally limited to less than the growth in GDP (or some other measure) in the previous year. So it is entirely plausible to end direct taxation. Either way, it is a stretch to say that someone committing a crime and using more govenrment resources is a violation of property rights because those resources tax you. I would say the crime itself is the only significant violation.

Further, there are rights, perhaps not inalienable, to free movement and exchange. Using the force of government to drastically limit the ability of a very large group of people to choose things for themselves, because a larger minority of that group will commit crimes, is pretty warped. What about the other 80% or 97% of folks that would live normal lives?

Also, not that there is a large difference between disagreeing with me, and my being logically inconsistent. Please steer your rhetoric to the former.


Dave,
Israel is a pretty bad example, as it is a very artificial nation. But, I would say that they are in a unique security situation where, in order to preserve freedom within their country, they limit freedom to enter their country. For the kind of immigration the US is seeing today, which folks here would say is far too much, we are not seeing an equivalent limitation of freedom.

TOday, in the US, I think if we allowed more people in legally, allowed unlimited number of smart|rich|educated immigrants, deported hard criminals (even non-immigrants), and built a secure wall, we would be better off. If we limit how much money the government spends on social programs, I would say that the number of people allowed in could grow. You'd then approach my view of Ivanistan, where individual rights are more important than slight increases in spending for an already very limited government.

Ivan Kirigin said at April 9, 2006 7:26 AM:

"The bottlenecks are the processing infrastructure and issues like sustainable yield, but the latter has a lot of slack built into it."

I understand the certain states in the US (I think California), limit where you can cut, but when you do, you are mandated to grow more threes than you cut. I'm pretty sure that means forrests are growing larger there. I might be mistaken in how I remember the policy though.

Dave said at April 9, 2006 9:55 AM:

How can you deport non-immigrants, where would they go?

According to statistics blacks are quite a lot more likely to be in jail in the US than whites, the effect of your idea would be to ethnically cleanse the USA of a large amount of blacks.
I don't think you have really thought through what you are saying. You would cause a war.


Israel is not a special case, even if there was no security issues, would you allow large scale immigration of Arabs, I don't think so. If the Jewish majority ended it would cease to be Israel.
Nations are not defined by an arbitrary geographical location, they are defined by the people and the culture of the people who live there. Change the people/culture and you change the nation.

Bob Badour said at April 9, 2006 10:00 AM:
No, I don't. If I commit a felony, I expect to lose certain rights -- like voting.

Depending on the felony, you can expect to lose all of your rights including the rights to life, liberty and the pursuit of happiness. Capital murderers lose everything.

The US can take away any right after due process. Are you suggesting that citizenship is not property and therefore the state can take it away without due process?


But I will not lose my right to free expression and association, etc.

With all due respect, convicts lose those rights. I do not know where you get your ideas, and I suspect you just make up whatever is convenient at the time. A con in solitary confinement cannot be said to have free expression or free association. Convicts are regularly ordered to refrain from associating with known criminals as a condition of release.


I'm not sure if you've heard me describe Ivanistan,

I am really not concerned with your fantasies.


there are rights, perhaps not inalienable, to free movement and exchange

The first is incompatible with property rights and the second is just a restatement of property rights. They contradict each other.


Either way, it is a stretch to say that someone committing a crime and using more govenrment resources is a violation of property rights because those resources tax you.

Illegal immigration is a violation of another's property rights. The owners of the nation have the right to prevent non-owners from entering the property. Citizenship is property that you are willing to destroy because you believe it constitutes a smaller part of your overall wealth than that of say a minimum wage busboy. If you have no respect for his property rights, what makes you think he will have any respect for yours?


Also, not that there is a large difference between disagreeing with me, and my being logically inconsistent. Please steer your rhetoric to the former.

Why? If you are not logically consistent, your position, on its face, lacks merit. If it contradicts itself, it is impossible to agree. Contradiction evaluates to false just as tautology evaluates to true. Neither pursuade.


Israel is a pretty bad example, as it is a very artificial nation.

A nation state based on tribalism is artificial?!? What makes a natural nation? LOL


we are not seeing an equivalent limitation of freedom.

Tell that to the families of the 3000 people murdered on 9/11. Tell that to the frequent travellers who threw out all their laced shoes in favour of loafers to ease the hassles at airport security. Tell that to the parents of kids killed in east-LA drive-by shootings. Tell that to the native anglophone kids learning ESL in majority latino neighbourhoods.

Are you suggesting that the US must first become surrounded by relatively large masses of vitriolic haters before Americans can own their property and live safely within the US borders?


You'd then approach my view of Ivanistan, where individual rights are more important

Bullshit. Ivanistan is a totalitarian state where only those you decide should have rights will have rights. You have already admitted you would support policies designed to deprive the poor their rights to what little property they have. Basically, you make up whatever seems convenient to your position, which means Ivanistan would be governed at your whim -- just like any other vile dictatorship.

Randall Parker said at April 9, 2006 10:04 AM:

Ivan,

Dave is correct about Israel.

Israel doesn't just keep out Muslims. It has an immigration policy designed to keep out non-Jews. It is an ethnic and religious state. It was founded to be an ethnic and religious state.

Why shouldn't a people want to keep their country compatible with their culture and values?

Bob Badour said at April 9, 2006 10:09 AM:

Tangoman,

Instead fly over the vast forests of B.C. and get a sense of the inventory that is waiting for harvest.

Having flown over B.C. a few times, I can say people will get a different sense. If they fly over the interior of B.C., they will get a sense of just how much of the province is above the tree-line. Snow-capped mountains that seem to extend forever.

If they fly over Vancouver Island, they will get a sense of the abject desolation of thousands of square miles of clearcutting. The island looks great from the highway, but it's pretty ugly from the air. The tops of the mountains look like they have been scalped with great violence.

crush41 said at April 9, 2006 10:32 AM:

Ivan,

Israel is a small state that does not have vast expanses where lots of its people are viewing Palestinian immigration sentimentally and from a distance. They are face to face with it.

In the US, freedoms are being limited for people face to face with Hispanic immigration. Ranchers check on livestock with armed guards, dogs are poisoned, Central American drug gangs create no-go zones, communication barriers fuel tensions, and American high school students are not allowed to display the US flag or symbols of it.

David Lajaunie said at April 9, 2006 10:57 AM:

It's difficult to guess just what fraction of construction costs are labor related primarily due to the fact that most general contractor's use construction management methodology and employ subcontractors exclusively, as opposed to having an in-house work force. Consequently actual labor costs are unknown to them and as they are the focus of most reporting efforts it's difficult to get a handle on the problem especially with regards to residential costs. It's easier to estimate on site-specific labor costs, which in my case are believed to be about 25%-35% of my construction costs for custom home building in the D.C. area. That of course includes government-imposed overheads such as workman's comp, federal and state unemployment insurance, FICA taxes etc. Add to that possible holiday and sick leave and subcontractor markups, it's pretty easy to guess that a tradesman's share of the work is relatively small. Additionally illegal workers, who now predominate in the unskilled and semi-skilled trades in this area, get only at best statutory benefits and frequently get stiffed for even those. Certainly in my case land cost and taxes exceed unloaded wages by a substantial margin.

My last job as a union carpenter in 1981 paid $16.47/hr plus substantial benefits. Non-union commercial carpenters could expect $9-13/hr with a lot fewer benefits. Now a production or line carpenter earns about $18-22/hr for non-union commercial work, which represents at least a 23% decline in real wages over that period of time, not to mention a concomitant reduction in benefits. Residential carpenters get much less. It is generally agreed that this decline is due to the elimination of union work, reduction in Davis-Bacon wages due to changes in reporting average local wages and the dominant factor, the influx of illegal aliens into the workplace bidding down wages. Despite the substantial reduction in real unit labor costs and advances in productivity, it's obvious that there has not been a parallel amelioration in commercial, institutional, industrial or residential building costs (see R.S. Means or ENR building indices). I suspect that management salaries, material costs, taxes, insurance and regulatory costs have more than made up the difference. Certainly the recent run-up in retail housing costs has been driven more by speculation than anything else.

Big Bill said at April 9, 2006 2:38 PM:

Ivan, my boy, you are just going to have to face it: We Americans are not Russians. And we certainly aren't Russian Jews. We just aren't. I am sure that from a Russian Jewish refugee perspective, opening America's doors to the "market" makes a great deal of sense. I mean, from a rationalist, globalist, no-borders, no-nation point of view, just who are we white Christian Americans to think we should live better than all the other goyim around the world? I know it seems like you have to bring light unto us goyim and teach us the best way to build our society. I know it seems like good money sense to let the fat, dumb, blue collar white Christian Americans, the Americans on the left half of the bell curve fall behind and go hungry, and bring in smart Chinese, Indians and Russians to replace them. And if I was raised as a Jew, I expect I would probably think the same way. But you know what? Most of us on this web site are not Jews, are not refugees from another country, and are not inclined to give up our homeland or let our dumber kinfolk and brethren go hungry because it would be more economically effficient.

Now, mind you, we don't believe in unfairness. You have your own homeland that is dedicated to you and your race and by golly we support you. And mind, we are not against the marketplace. We are not asking anyone to expel Jews or Mexicans or any other race who are American citizens. Unlike Israel, we don't believe in rigging the market by putting all the good land in America in the hands of a "Christian Agency" in order to "redeem" it from Jews and Muslims.

No, we just want the members of our own country to look, think, act and worship generally like we do, and show similar signs of assimilability. Much like Israel limits immigration to Jews and only to Jews.

We are just asking you to recognize that just as we don't diddle with the internal affairs of Israel, we don't want you or others diddling with our internal affairs. From a perspective of moral symmetry if from nothing else, is it impossible to recognize that just as you do not want to be overrun in YOUR people's sacred homeland, Israel, by us goyim, that we similarly do not want to be overrun in OUR own homeland by Mexicans and others ... no matter HOW economically efficient that is?

I fear that to you, we are all just a bunch of goys, and from that perspective, why the big beef about whether Mexicans rule America or Americans rule America? We goyim are not all the same. We goyim are not interchangeable. And therefore we Americans wish to be treated in our homeland just as you wish to be treated in your homeland. In America, just as in Israel, the demographic question can't be resolved by choosing the route of greatest economic efficiency.

PS: On NPR I just heard Bush say we would use "might, military might to protect our ally, Israel" when asked whether we were going to attack Iran. Son, we're fighting for you. We're dying for you. Please don't make us give away our country, too. We may not be as smart as you or as rich as you. We may not have as many college degrees or wealthy friends, politicians and benefactors, but we have been here quite a while now, have learned the secret of getting along, rich and poor, and we know twenty million Mexicans would be disaster -- no matter how much money it would save globalist businessmen.

Bob Badour said at April 9, 2006 3:37 PM:

Clearcutting on Vancouver Island -- zooms out and pans Things actually look worse from a plane because the oblique angle tends to hide the forested valleys behind the bald tops.

More clearcutting imagery

The BC interior has a lot above the treeline. As you pan to the right, first you will see the interior plateau near Kamloops speckled with clearcuts, and then further to the right, you will see the Rockies again rise up above the treeline.

Ivan Kirigin said at April 9, 2006 6:31 PM:

Clearly those in prison lose rights. I should have clarified that I meant after leaving prison, they keep rights guaranteed in the Bill of Rights. Either way, the point is whether citizenship is a right. I would say it isn't.

This supports your point, Randall & Bob, that government should be able to manipulate citizenship access. My only reason for arguing it is that wrapping immigration issues into that of "property rights" is dumb. That's all.

Israel is artificial in the sense that a small group of people decided that it should come into existence again, and despots around it stay in power by getting their people to feel like something was stolen from them by Israel's existence. That is a pretty poor analogy to America’s immigration situation.

Bob Badour said at April 9, 2006 6:44 PM:
My only reason for arguing it is that wrapping immigration issues into that of "property rights" is dumb. That's all.

You say it is dumb, but it seems perfectly reasonable to me. It is certainly a lot more logically consistent than the hodge podge of arbitrary rules you have put forth.

For the least able in society, about the only property they have besides the shirts on their backs is their citizenship. Your policy of unfettered foreign invasion deprives them of any benefit from that property and clearly violates their property rights. You have not put forth a single convincing argument to counter the principle nor have you given any reason to accept the axioms upon which you predicate your position, which seem to change depending on the direction of your wind.

Randall is right: you are blinded by faith. You are basically a lost cause, and I think I will start ignoring you now.

Israel is artificial in the sense that a small group of people decided that it should come into existence again

I suggest you have no clear understanding of a nation state nor of the natural causes for same. I fail to see any difference between the way America came into existence and the way Israel came into existence. Actually, Israel seems to me to have greater legitimacy both in its founding and in its status as a nation state.

Dave said at April 9, 2006 7:52 PM:

Its not just Israel, any small nation has the same obvious problem. The only reason many people don't see it with the USA is because its so big that the effects of immigration are not immediately apparent.

What happens in the Serbian province of kosovo when Albanians became the majority? A civil war was provoked (I'm not making a judgement over who was right or wrong) and now Serbia has pretty much lost Kosovo. You can see examples of this all over the world and they are caused by large demographic shifts. Albanian didn't invade militarily, there was simply a movement of people which then reach critical mass.


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