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Econometric Advisors' blog

Construction costs: It's the materials

Sep 1, 2017, 12:45 PM by Tim Savage

What does it cost to build a prototypical structure? For the sake of argument, I nominate a parking deck in Cincinnati. Using just such a structure, CBRE Assessment and Consulting Services has pulled together an enlightening case study that clearly presents the site specifications and a breakdown of costs. To my eyes, it's nothing out of the ordinary.

Have a look at the labor components of the cost distribution. "Site Work" (14%) is basically the labor cost of the subcontractors. The "GC Fee" (3%) is an upper bound on the labor costs for the general contractor. And there may be some ancillary wages included under "General Conditions." Together, these make up less than one-fifth of the total cost of construction. Four-fifths of the total cost comes from materials—the largest component of which, the study shows, is concrete.

CBRE A&CS - Construction Costs Case Study - Aug 2017

Source: CBRE Assessment and Consulting Services, 2017.

When labor accounts for such a small share of construction costs, does it make economic sense to consider technological labor-saving innovations, such as automation? Meanwhile, what drives the cost of concrete (by far, the single largest cost item)?

All good things to ponder.


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