Cautious Optimism For 2022 Construction Costs
Cost Index Q4 2021

The data collected for the Mortenson Cost Index is showing an increase of 2.9% nationally for the fourth quarter of 2021. The construction market, like many, experienced unprecedented inflationary headwinds in 2021, which continues to present unique challenges today. There is a cautious but more optimistic view for 2022 as construction spending appears stronger and in line with broader economic recovery. This is due to the re-engagement of pandemic-delayed projects and owners across many different project types deciding to move forward despite ongoing market conditions.

Lingering supply chain delays and labor availability challenges will put pressure on projects this year and along with unknowns around the pandemic will sustain a level of uncertainty moving forward. Construction materials prices increased nearly 20 percent in 2021 according to the Associated General Contractorsof America (AGC). Although costs moderated towards the end of the year, the AGC says that costs and labor availability will remain a top concern throughout 2022. Impacts from the Bipartisan Infrastructure Bill are still undetermined but are anticipated to add to contractor demand later in the year.

The Mortenson Construction Cost Index data reflects current market conditions with increases across 26 of 30 component categories tracked, which includes labor, material, equipment, and trade partner feedback. Our national construction cost data is signaling an average input cost increase of 2.9% for the fourth quarter of 2021 and 21.5% over the last twelve months.

While no one industry or building type has been exempt from the ongoing market challenges, we are seeing progress. We see some persistent cost fluctuations continuing this year but believe the cost increases experienced in 2021 will moderate. Historical data suggests that future escalation should trend towards a plateau. In doing so, agility in project planning is required over the next 12 months.

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