The cost of construction is rising fast and will keep rising for the foreseeable future according to Commercial Property Executive contributing editor Dees Stribling. The Consumer Price Index for January dropped 0.7%, largely due to the 18.7% price drop for gasoline during that month. Food, fuel oil and natural gas were also low, although electricity rose 0.2% during the same time period. If the unusual energy and food transportation cost drop is taken out of the equation, prices would have risen 0.2% during January 2015. The average inflation rate across all items in the index of 2014 was 0.1% lower than in 2013, but if energy and food are taken from the calculation, then prices would have risen 1.6% for the year.

When comparing the reasonable inflation rates to the cost increases in the construction industry, it is clear that the resurgence of land development is driving a cost increase in the real estate industry that outpaces inflation.

The Engineering News-Record found that total construction costs from February 2014 to February 2015 rose 2.9%. The price increase is attributed to the rising costs of labor and materials. The baseline labor wage increase was 2.8% for 2014, but the busiest markets were seeing even higher labor cost increases. The materials costs for 2014 also increased to higher-than-inflation rates. The ENR lists a 0.1% price increase for rebar in its 20-city average price index. Rebar rates currently sit 3.4% higher than they were in February 2014. The 20-city index also lists the current average price for gypsum wallboard as 21% higher than in February 2014. Paving asphalt rose 3.5% for the year, but if oil prices remain low, that rate may be expected to drop. After a 0.4% increase in January, the most stable price to be found in the index is for reinforced-concrete pipes, which remained between 3.2% and 4.9% for the past year.

Although land prices vary widely by location, the nationwide trends show that undeveloped real estate, even for B-grade lots, are dramatically increasing in larger urban centers. The economic downturn forced many companies to divest their land holdings and discouraged firms from buying more land. As a result, the “development pipeline” for proper permitting and entitled land ready for building is very scarce. Other areas have simply run out of lots to develop. As a result, land prices are at a premium for most of the markets in the 20-city index.