Increasing construction costs: rise in competition for developable land and labor constraints

The demand for developable land is increasing at a rapid pace, but so is developable land scarcity and labor shortages.

Market trends
Increasing construction costs: rise in competition for developable land and labor constraints

The demand for developable land is increasing at a rapid pace, but so is developable land scarcity and labor shortages. In this blog we dive deeper into the causes of the increasing construction costs for industrial and commercial projects. 

Scarcity of Developable Land

The rise in global population is one of the reasons affecting scarcity of developable land, and hence the increasing cost of construction. As population grows, especially in cities which are already heavily developed, demand for land for space including residential, commercial and industrial purposes is increasing. Due to these places already experiencing decades of development, the supply of land available for new developments is limited, particularly in desirable cities where land prices are at a premium. 

The scarcity of land not only increases competition among developers, driving up land prices, but also forces them to work within smaller plots of land. This results in having to employ techniques and materials that can help developers use space more efficiently, while still creating a building that is suitable to their potential customers needs. 

In some cases, where land is very scarce, developers are forced to look at previously unusable or undesirable land – this includes hillsides or contaminated land – that requires additional engineering and environmental redemption work, resulting in higher construction costs. 

Zoning laws and similar types of regulations – which are made to ensure that land is in harmonious and consistent use with the communities its built in –  also play a major role in challenges related to scarcity of developable land, as they limit areas where projects such as residential, commercial, or industrial can take place.

Innovative Approaches to Solve these Issues

Although the above may paint a bleak picture for the future of new developments, there are some positive, innovative approaches that developers can take. These can mean that developments are built with local communities in mind, and are more sustainable models. 

Some developers take an alternative route and focus on redevelopment projects. That is repurposing existing buildings, or converting industrial spaces into offices or other commercial and residential spaces. These approaches reduce the demand for developable land, can be far-more cost effective than building from scratch and regenerate areas by bringing in new business and people to neighborhoods.

Another approach developers take is to explore alternative construction methods, such as modular construction or orefabrication, which can help reduce construction costs and speed up the building process. Such methods can mean a more efficient use of materials and faster construction times, making developments more sustainable while reducing labor costs.  

Overall, lack of developable land, especially in urban areas, is a significant driver of construction costs. However, with innovative approaches to construction and redevelopment, developers are still able to meet the growing demand for space while maintaining costs of construction. 

Labor Shortages 

Labor shortages are another significant factor driving up construction costs. The industry is highly dependent on skilled labor –  such as electricians, engineers and plumbers – but across the globe, the industry is facing shortages in skills in those areas. This has led to increase in labor costs, as companies compete to gain the skilled laborers necessary to complete these jobs. 

Why are there such shortages in labor? One one reason is demographic change. As older generations retire, there are fewer skilled workers to replace them as younger workers are attracted to careers in emerging industries such as technology and finance. 

The rising cost of education and training in the construction industry also means that many young people face a barrier to entry into skilled construction work. This means that many young workers are not adequately trained for the skills that are required in the construction industry. 

The industry is also still seeing the effects of the COVID-19 pandemic. The delays in projects, due to illness and quarantine measures, mean that contractors scramble to find replacement workers to finish existing projects. 

Solutions

To address these challenges, industry stakeholders and governments must look at implementing policies that encourage a new work force to enroll in training for skilled construction jobs. These could take the form of financial incentives, or lower costs of education for these jobs. 

Overall, the issues of training and education, as well as changing demographics, magnified by delays in construction due to COVID-19, have resulted in increased labor costs. 

Conclusion

The two most significant factors for rising costs of construction are the scarcity of developable land and labor shortages. Both lead to competition among developers to get the best land and most workers to embark on these projects. These factors combined, create a challenging environment for the construction industry. 

However, with more efficient and innovative methods in engineering, use of land and development, some issues with developable land scarcity could be solved. Likewise, new policies and laws encouraging training for professions related to the industry, could solve labor shortages in the future.

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