Construction costs shape plans for development in Greater Houston area

An increase in building material costs and a shortage of skilled laborers—two problems construction companies in the Greater Houston area faced in 2014—are expected to continue in 2015. The rising cost of materials has raised construction costs. At the same time, a shortage of skilled laborers has led to an increase in wages, which also drives up costs and contributes to the problem, according to area builders and developers. Officials with the Lone Star College System, Tomball ISD and Magnolia ISD all said construction costs are closely monitored and taken into account when new schools and buildings are being considered. Since voters approved TISD's $160 million bond in May 2013, the district has begun construction on four new schools on track to open for the 2015–16 and 2016–17 academic years. During a Feb. 9 presentation at the district's board of trustees meeting, TISD Construction Director Gary Hutton said there have been several rain delays causing setbacks of anywhere from two to six weeks on the construction of the new schools. The district accommodated for an increase in construction costs in the area and budgeted a total cost of $90.1 million for the four new schools, he said. "We're still battling the concrete delivery," Hutton said. "We fired the concrete [supplier] we had on the job, and we're bringing in a replacement people to try and get that going so we can start seeing more movement on the paving here in the next month." MISD officials are not constructing any new schools at the time but are mindful of the rapid construction and labor costs affecting the area, MISD Communications Director Denise Meyers said.

Effect on builders

Local builders are also affected by the labor shortage and material cost increase. "A major concern for builders at this point is the rising cost of labor due to the shortage of labor," said Kevin Frankel, president of the Greater Houston Builders Association. "This has been a focus for years. It's something we have sat down and had discussions about to try to come up with ways to alleviate it." The increasing cost of construction for office projects can be linked in part to the growing depth of the tenant pool creating more demand. Several projects went online in 2014 to alleviate that demand, but the glut of projects only intensifies the labor shortage, according to officials with Kirksey Architecture, a Houston-based company that publishes an annual report analyzing construction costs. Turner Construction Company, which has offices throughout Houston, developed its own cost index to track nonresidential building construction. The company's methodology—which considers labor rates and productivity, material prices and the competitive condition of the marketplace—shows steady cost increases every quarter since 2011. Overall, costs have risen about 11.7 percent since that time. "Growth in nonresidential construction was steady in the fourth quarter [of 2014] in virtually all domestic markets," Turner Vice President Attilio Rivetti said. "Higher construction cost escalations in urban centers with increased construction activity as well as selective megaprojects are driving the average domestic construction cost increases."

Fewer skilled hands

One persistent element of the rising construction costs is the shortage of skilled workers in various fields, including industrial electricians, heavy equipment operators and concrete finishers. A 2014 survey conducted by the National Association of Home Builders found about 46 percent of Houston building companies are struggling with the skilled labor shortage. Houston added more construction jobs than any U.S. metro market in 2014, according to the Associated General Contractors of America, which likely means the labor shortage will continue in 2015. The declining unemployment rate has also made it difficult to find qualified workers, officials said. The GHBA has partnered with Houston Community College to educate students on construction career opportunities, and LSCS has its own objectives. "People in construction are all telling us how hard it is to find skilled workers they can depend on," LSCS Chancellor Steve Head said. "That was a major part of our bond expansion plans, which focus on specialty workforce classes."