Construction Costs Rise in 2020?

With opportunity zones fueling new development activity, could construction costs start to increase again in 2020?

Construction costs continued to climb again last year after years of rapid growth, but could that change in 2020? The new construction pipeline is growing as a result of opportunity zone activity, and in 2020, new construction activity will continue to grow. However, don’t expect the increase in activity to put pressure on construction costs. However, they will continue to be a top concern for developers.

We do not anticipate that a boost in activity from opportunity zones will significantly impact construction costs. That said, construction costs are top of mind for developers and owners as they continue to inch upward.

While opportunity zone construction isn’t having a specific impact, construction costs are expected to increase again in 2020. To curb these costs, it’s recommended building a close team and sitting down early in the process to curb costs. This is why it is extremely important to work with contractors who understand how to combat this. This design-build strategy has become an industry standard for developers looking to hedge against rising construction costs and to find some relief.

Some construction companies have already become an experts in working with developers to curb costs, and as construction activity grows—particularly in opportunity zones—the firm will continue to find ways to reduce costs. For example, some teams have a deep network of subcontractors and often self performs work, which helps to reduce rising costs associated with labor shortages. They also work directly with developers during the pre-construction process to value engineer materials to keep costs down.

In the affordable housing segment, this is especially crucial because rents have a cap, and costs need to be kept low to meet those requirements. This is especially crucial in the affordable housing space where keeping costs down without sacrificing quality is instrumental. Opportunity zones largely focus on challenged neighborhoods, where affordable housing is essential. As many work with developers on opportunity zone builds, it will continue to utilize these strategies.