Rising material, labor costs threaten health care construction

Projects are being delayed, curtailed and canceled due to price spikes in basic building materials.

By Katherine Vogt, AMNews staff. Oct. 23/30, 2006.

Soaring prices for several basic building materials like copper and steel are taking a toll on health care construction across the country, forcing the cancellation, scaling back or delay of scores of projects.

The volatility began nearly three years ago when the price of steel sharply increased, said Kermit Baker, chief economist at the American Institute of Architects in Washington, DC. Since then, price spikes have been seen in concrete, gypsum (which is used in wallboard), copper, asphalt, brass, petroleum and iron.

Baker said annual cost increases have been going up by 10% or more for the materials. Copper is up nearly 90% from a year ago.

Some health care leaders say the price volatility could have enough of an impact that it will slow down the industry construction boom that has been under way for several years. At the very least, they say it has resulted in many projects for hospitals, ancillary facilities and medical office space being curtailed or going over budget. "It's been a big impact," said Michael Carson, manager of health care estimating for the Phoenix-based general contractor Kitchell Contractors.

Physician projects for ancillary facilities and medical office space have suffered from the price pinch as well. Carson said some physicians are now finding that they can't afford to move into new office space as they previously had planned to do.

"When construction costs go up, that means their rent goes up, and most of them are not wanting to spend that rent increase," he said.