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Multifamily Executive Magazine: No Relief; Construction Costs Still Seem Astronomically High

September 10, 2009

It’s no secret that multifamily development has plummeted since the housing bubble burst.

And since construction prices often correlate to development activity, it’s no surprise that construction prices have swung wildly from one extreme to the other over the past few years.

Now, the question is: Is it cheaper to develop a 150-unit mid-rise today as opposed to four years ago during the height of the boom?

The answer: No.

According to data provided by Greenbelt, Md.-based Bozzuto Construction, construction materials for a 150-unit apartment building in a high-barrier market cost approximately $1.01 million in 2005.

Today, the construction materials for the same building cost roughly 2.8 percent more—or $1.21 million.

Mike Schlegel, president of Bozzuto Construction, says the increase in costs relates directly to the housing boom. “When prices were at a low and reasonable rate, buildings were in construction like clockwork. Now that they are down, construction is almost scarce.”

Jeffrey Roblyer, chief marketing officer for Birmingham, Ala.-based Capstone Building, says these costs are in line with what he has seen. “I agree with these numbers. Over the past five years, there has been an aggregate increase in the 25 percent to 27 percent range.” The one exception? Lumber, which is about the same price as it was five years ago, Roblyer says.

Why? There has been an oversupply of lumber and plywood due to less production. Also, lumber vendors are offering discounts between 3 percent and 10 percent in order to stay afloat. “They are mostly one-off discounts,” Roblyer explains, adding that the increase in construction materials costs may have something to do with labor costs and not enough service providers reducing their prices.

Schlegel agrees. “A lot of these numbers are being offset by labor costs,” he says. “Once those numbers come down, then we might see a decrease in materials costs. Unless that happens, materials costs will be higher than four years ago.”