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Rising Costs in the Construction Industry
It takes money to make money, as they say. For construction firms, the necessary investments mainly come in the form of materials and labor. As the costs of both increase, profit margins are squeezed and tightened.
What exactly is causing this phenomenon, and how can decisionmakers mitigate the effects?
The Labor Shortage
The entire construction industry is facing a big hurdle – there are many open jobs and not enough qualified candidates to fill those positions. Talented candidates are in demand, and they know it. This causes an issue in the hiring process, as multiple firms may have to compete for a candidate’s attention.
The leads to increased wages and benefits, as many businesses will use these perks to persuade desirable talent. In fact, 62% of surveyed firms say they actively do this to attract or retain their employees.
This practice may help firms to acquire and keep the best in the business, but it’s coming at a cost. If the cost of labor continues to rise, it will further squeeze profit margins, firms will have to raise their prices, and the industry will surely feel negative effects.
Materials on the Rise
There are many factors causing the rising cost of materials. Tariffs and trade issues drive costs up, as do environmental regulation and changing demand. Many projects require lumber, steel, fuel, and iron, which have all seen drastic increases recently. In just one year, the cost of crude petroleum went up 49%, lumber 29%, and iron and steel 14%.
While some firms are working closely with contractors to lower costs during the pre-development stage, prices are changing so rapidly that their estimates may be completely off once the project starts.
There are many ways to combat the rising costs in the construction industry, but each region and specialization will need to react differently.
Even so, one possible solution is to work closely with technology. While some technological advancements do require an investment of time, training, and money, those costs could be offset in the long run with efficiency and safety. For example, building information modeling (BIM) software can help to cut costs, keep the project on schedule, and more. Drones can help to keep sites safer, monitoring for any risks or hazards.
To combat the talent shortage, you can work with our expert team of consultants to find and attract the best talent. The average talent search is exhausting, drawn-out, and expensive. We can help to mitigate those costs and find the perfect candidate for your project.