Boston May Be Hurt By Its Development Successes

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Construction costs have been increasing steadily over the last four years, up 8% from 2011 to 2013 and they are on track for, at least, another 4% this year. That is good news for labor, but it may not be so good for future development. Material costs are also climbing with structural steel and reinforcing bars up double digits over the last 12 months. There are substantial increases projected for other building materials like gypsum, cement and lumber.

The explosion of construction has left some developers finding it more difficult to even attract bids from some subcontractors. After being burnt in the last downturn, many subcontracting companies scaled back and have chosen not to take the risks of accelerated expansions of their companies.

With new developments projected to start this year and next, and additional large scale projects on the drawing boards or in permitting, the demand for labor and materials will only increase, pushing costs up even higher.

What many developers are nervous about down the road is the start of the mega projects. The convention center expansion and the Winn casino in Everett are sure to “suck the oxygen” out of the construction environment.

Unfortunately, at some point the construction costs are going to make a number of commercial and/or multi-family developments infeasible. In a free market, one would expect labor to move into the area when demand is strong and supply limited. Unfortunately, our high cost of living (especially housing) will severely limit that correction in the market. The last recession brought down construction costs. Let’s hope we can find a different solution this time around.

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