Labor Drives Regional Variation in Construction Costs

Recent analysis from BuildZoom found that between construction’s two major cost contributors, material and labor, material prices remain relatively stable among U.S. regions, while labor costs vary greatly.

Construction costs have risen 23.6 percent overall since 2004, and tend to be most expensive coastal cities or hard-to-reach places such as New York, San Francisco, and Honolulu. These same cities generally see much higher labor costs than average, for example, New York’s labor costs were between 64.6 and 78.2 percent more expensive than the 30-city average between 2008 and 2018.

The differences in material costs are so much smaller than the differences in labor costs because materials are a tradable good, whereas labor is not. Goods that can be traded across locations tend to converge towards a common price everywhere. Of course, discrepancies can persist inasmuch as prices are driven by the cost of transporting the goods, but otherwise, they tend to be similar everywhere... The wages of construction workers, on the other hand, vary by location and are influenced by the cost of living and the different labor market conditions in each city. Despite the relative ease of geographic mobility in the US, most people remain in their state of birth–especially those without a college degree. Moreover, when workers migrate their compensation tends to shift as well.

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