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Construction Inflation Index Tables

 10-24-16 original posted


 1-27-17 updated index tables and plots
 8-6-17 updated index tables and plots to 2017 base = 100
 2-12-18 updated index tables to Dec 2017 data (major revisions to HiWay index)

This collection of Indices is published in conjunction with this linked commentary

Construction Cost Indices come in many types: Final cost by specific building type; Final
cost composite of buildings but still all within one major building sector; Final cost but across
several major building sectors (ex., residential and nonresidential buildings); Input prices to
subcontractors; Producer prices and Select market basket indices.

Residential, Nonresidential Buildings and Non-building Infrastructure Indices developed by


Construction Analytics, (in BOLD CAPS), are sector specific selling price composite
indices. These three indices represent whole building final cost and are plotted in Building
Cost Index – Construction Inflation, see below, and also plotted in the attached Midyear
report link. They represent average or weighted average of what is considered the most
representative cost indicators in each major building sector. For Non-building Infrastructure,
however, in most instances it is better to use a specific index to the type of work.

2-12-18 plots updated to Dec 2017 data, includes revisions to historic Infrastructure

All actual index values have been recorded from the source and then converted to current
year 2017 = 100. That puts all the indices on the same baseline and measures everything to a
recent point in time, Midyear 2017.
Not all indices cover all years. For instance the PPI nonresidential buildings indices only go
back to years 2004-2007, the years in which they were created. In most cases data is
updated to include December 2017.

 June 2017 data had significant changes in both PPI data and I H S data.
 December 2017 data had dramatic changes in FHWA HiWay data.

2-12-18 – Index updated to Dec 2017 data

SEE BELOW FOR LARGER IMAGE

When construction is very actively growing, total construction costs typically increase more
rapidly than the net cost of labor and materials. In active markets overhead and profit margins
increase in response to increased demand. When construction activity is declining,
construction cost increases slow or may even turn to negative, due to reductions in overhead
and profit margins, even though labor and material costs may still be increasing.

Selling Price, by definition whole building actual final cost tracks the final cost of
construction, which includes, in addition to costs of labor and materials and sales/use taxes,
general contractor and sub-contractor overhead and profit. Selling price indices should be
used to adjust project costs over time.

Here’s a LINK to a good article by Faithful & Gould that explains “If you want to avoid
misusing a cost index, understand what it measures.”

quoted from that article,


R S Means Index and ENR Building Cost Index (BCI) are examples of input indices. They
do not measure the output price of the final cost of buildings. They measure the input prices
paid by subcontractors for a fixed market basket of labor and materials used in constructing
the building. These indices do not differentiate residential from nonresidential. These indices
do not represent final cost so won’t be as accurate as selling price indices.

Turner Actual Cost Index nonresidential buildings only, final cost of building

Rider Levett Bucknall Actual Cost Index in RLB Publications nonresidential buildings
only, final cost of building, selling price

IHS Power Plant Cost Indices specific infrastructure only, final cost indices

 IHS UCCI tracks construction of onshore, offshore, pipeline and LNG projects
 IHS DCCI tracks construction of refining and petrochemical construction projects
 IHS PCCI tracks construction of coal, gas, wind and nuclear power generation plants

Bureau of Labor Statistics Producer Price Index only specific PPI building indices reflect
final cost of building. PPI cost of materials is price at producer level. The PPIs that constitute
Table 9 measure changes in net selling prices for materials and supplies typically sold to the
construction sector. Specific Building PPI Indices are Final Demand or Selling Price indices.

PPI Materials and Supply Inputs to Construction Industries

PPI Nonresidential Building Construction Sector — Contractors

PPI Nonresidential Building Types

PPI BONS Other Nonresidential Structures includes water and sewer lines and structures;
oil and gas pipelines; power and communication lines and structures; highway, street, and
bridge construction; and airport runway, dam, dock, tunnel, and flood control construction.

National Highway Construction Cost Index (NHCCI) final cost index, specific to highway
and road work only.

S&P/Case-Shiller National Home Price Index history final cost as-sold index but includes
sale of both new and existing homes, so is an indicator of price movement but should not be
used solely to adjust cost of new residential construction

US Census Constant Quality (Laspeyres) Price Index SF Houses Under


Construction final cost index, this index adjusts to hold the build component quality and size
of a new home constant from year to year to give a more accurate comparison of real
residential construction cost inflation

Beck Biannual Cost Report develops indices for only five major cities and average. The
indices may be a composite of residential and nonresidential buildings. It can be used as an
indicator of the direction of cost but should not be used to adjust the cost in either of these
two sectors.
Mortenson Cost Index is the estimated cost of a representative nonresidential building
priced in six major cities and average.

Other Indices not included here:

Consumer Price Index (CPI) issued by U.S. Gov. Bureau of Labor Statistics. Monthly data
on changes in the prices paid by urban consumers for a representative basket of goods and
services, including food, transportation, medical care, apparel, recreation, housing. This index
in not related at all to construction and should never be used to adjust construction pricing.

Leland Saylor Cost Index Clear definition of this index could not be found, however
detailed input appears to represent buildings and does reference subcontractor pricing. But it
could not be determined if this is a selling price index.

Jones Lang LaSalle Construction Outlook Report National Construction Cost Index is the
Engineering News Record Building Cost Index (ENRBCI), a previously discussed inputs
index. The report provides some useful commentary.

Sierra West Construction Cost Index is identified as a selling price index but may be
specific to California. This index may be a composite of several sectors. No online source of
the index could be found, but it is published in Engineering News Record magazine in the
quarterly cost report update.

Vermeulens Construction Cost Index can be found here. It is described as a bid price
index, which is a selling price index, for Institutional/Commercial/Industrial projects. That
would be a nonresidential buildings sector index. No data table is available, but a plot of the
VCCI is available on the website. Some interpolation would be required to capture precise
annual values from the plot. The site provides good information.

The Bureau of Reclamation Construction Cost Trends comprehensive indexes for about
30 different types of infrastructure work including dams, pipelines, transmission lines,
tunnels, roads and bridges. 1984 to present.

US Historical Construction Cost Indices 1800s to 1957

Click Here for Link to Construction Cost Inflation – Commentary

2-12-18 – Index updated to Dec 2017 data, includes revisions to historic Infrastructure
How to use an index: Indexes are used to adjust costs over time for the affects of inflation.
To move cost from some point in time to some other point in time, divided Index for year you
want to move to by Index for year you want to move cost from. Example : What is cost today
for a nonresidential building that was built in 2013? Divide Index for 2018 by index for 2013
= 104.5/84.7 = 1.234. Cost of building in 2013 times 1.234 = cost of same building in 2018.
Costs should be moved to midpoint of construction. Indices posted here are at middle of year
and can be interpolated to get any other point in time.
Construction Cost Indices: Their Creation
and Use
By Tom Wiggins on 8 Mar 2016
Those who regularly work with construction cost estimates will at some time use a cost
index.

To use cost indices, most people look up a couple of values in the tables, perform some
rudimentary math and the resultant factor can be used for the desired adjustment. The
adjustment desired is typically cost change over time at a location or cost differences between
locations, often including some time adjustment.

However, construction cost indices are an extremely powerful tool whose use is broader than
these typical applications. For example, the U.S. Government produces indices, such as price
indices for houses for a few building types, including houses. The government uses them to
prepare price deflators for Gross Domestic Product (GDP). They recognized many years ago
inherent problems unique to construction indices.

An important aspect of using a cost index is to ensure you are asking the right questions
about its source.

An important aspect of using a cost index is to ensure you are asking the right questions
about its source. Do you understand what the index really measures? Do you know how the
information was compiled? A basic understanding about the methodology used to create an
index can aid in the interpretation of the results it provides.

A few basic index distinctions will help provide some clarity. The first question to ask about
an index is: 'What does it really measure?'. Most construction indices are built using the cost
of the inputs – a representative selection of labor, material and equipment. Notice the
distinction, cost of the inputs, not price of the output.

It is essential to remember that a cost index measures the price movement for some objects
over time and/or location using a series of values. A basic understanding of the theoretical
construct aids in interpreting the results from applying the index. Different index creation
methodologies may yield very different search results.

Most U.S. cost indices use cost inputs. It's difficult to prepare an output index for the
construction industry. This is unfortunate since market forces are not well measured by input
indices. Output indices measure changes in prices of what is produced by entities engaged in
construction activity. An output index includes the items built into the price paid by
purchasers of the output element – materials, labor, plant and equipment, overheads, profits,
margins. An example is the home seller index which measures the selling price of a house.

It is essential to remember that a cost index measures the price movement for some objects
over time and/or location using a series of values.
Market conditions may be the factor that skews input-based index comparison results the
most. This is why some organizations seek to introduce some aspects of output measures,
creating a pseudo-output index.

A comparison of four construction indices begins to demonstrate the point. The Turner Cost
Index is presumably an output index. The PPI Nonresidential Construction Index by the
Bureau of Labor Statistics attempts to measure subcontractor pricing for items, introducing
aspects of an output index. RS Means and ENR produce traditional input indices. While other
factors contribute to the variations shown, it illustrates very clearly how measures of the
market (reflecting output prices) influence an index. Input cost indices do not show the
extremes of economic cycles like output indices.

Most users of cost indices are focused on smaller issues than adjusting the value of
construction GDP. Anyone with a database of historical construction costs relies on
construction cost indices to prepare cost estimate benchmarks. When establishing a
benchmark, using previous project costs to establish a budget, adequately ascertaining cost
change for time and location is essential.

However they are used, indices provide a simple way to relate the cost of an item at a specific
time to a corresponding cost at a different time, or a different location and time. The focus is
modifying historical costs. Unfortunately the use of an index as an accurate predictor of
future costs is not yet a reality.

When comparing different locations, local codes and climate can skew cost comparisons.
Adjustments for these considerations are never straightforward. Thoughtful consideration
may assist if the results after applying an index do not seem quite right. Differences in
seismic and wind loading design requirements can impact cost comparisons between
locations. For example, any index comparison of costs between Los Angeles and Minneapolis
should include consideration of a seismic cost adjustment. But, countering the higher Los
Angeles cost due to seismic requirements would be some higher costs in Minneapolis due to
the climate. Similarly, a coastal Florida building will have unique costs for wind loading.
Then, there is Charleston, South Carolina with both seismic and wind design requirements to
consider.

If you want to avoid misusing a cost index, understand what it measures.

The type of construction modeled in the index should be considered. Many indices are
intended to reflect general building construction. Some may be tailored to a specific building
type, i.e. manufacturing, or type of construction, i.e. steel frame.

Indices are differentiated by how they are compiled. Most construction indices are Laspeyres
Type. They hold constant the types and quantities of each item required, suitably weighted
according to contribution toward total cost.

If you want to avoid misusing a cost index, understand what it measures. Remember that cost
indices are as much an art as they are science. Use the index values with some thought and
consider judicial adjustments for what they are not measuring.