Inflation : Real estate & Construction Industry

Paul Krugman - talk about Real estate 2022


However, the level of construction activity has a direct influence on labor and material demand and margins and therefore on construction inflation. 房屋開工建案熱度對於員工需求, 建材原料需求, 和毛利率有直接影響

One of the best predictors of construction inflation is the level of activity in an area. When the activity level is low, contractors are all competing for a smaller amount of work and therefore they may reduce margins in bids.降價, 通膨會下降 When activity is high, there is a greater opportunity to submit bids on more work and bid margins may be higher.抬高價格, 通膨會上漲 The level of activity has a direct impact on inflation.


Nonresidential buildings inflation 10-year average (2011-2020) is 3.7%. In 2020 it dropped to 2.5%, but for the six years 2014-2019 it averaged 4.4%. In 2021 it jumped to 9%, the highest since 2006. Residential 8-year average inflation for 2013-2020 is 5.0%

In 2020 it was 5.3%. In 2021 it jumped to 14%, the highest since 1978.

As of Sept 2021, PPI for materials inputs to construction is up ytd 15% to 18%. For the 18 months since March 2020,

the PPI for materials inputs to construction is up ytd 23%, but the PPI Buildings Cost Index for final cost to owner is up only 5% to 6%




A few are still reporting only 4% inflation for 2021, but several have moved up dramatically, now reflecting between +10% to +14%. My estimate for 2021 inflation has been changing, moving up again. Nonres bldgs inflation for 2021 is currently estimated at 8.7% and residential at 15%

Selling Price is whole building actual final cost. Selling price indices track the final cost of construction, which includes, in addition to costs of labor and materials and sales/use taxes, general contractor and sub-contractor margins or overhead and profit.

When construction activity is increasing, 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. These costs are captured only in Selling Price, or final cost indices.

Producer Price Index (PPI) for Construction Inputs is an example of a commonly referenced construction cost index that does not represent whole building costs. The PPI is a materials cost index. Engineering News Record Building Cost Index (ENRBCI) and RSMeans Cost Index are other examples of commonly used indices that do not capture whole building cost.




Residential inflation indices are primarily single-family homes but would also be relevant for low-rise two to three story building types. Hi-rise residential work is more closely related to nonresidential building cost indices.

A nonresidential buildings index would be representative of commercial construction or hi-rise residential construction, since hi-rise residential is quite similar too commercial construction and in fact substantial portions of the building are constructed by firms classified as commercial constructors.