It's no secret that costs for everything are going up. Have you priced new cars lately? Or a home? Or a pound of ground beef? Well, you should try shopping around for construction costs.
This is not an economics blog, and we are not a financial services company, but there are a few basics that you should know about planning your church's next construction project.
For those unfamiliar with the technical definition of the term, "inflation" refers to "a general increase in prices and fall in the purchasing power of money." In laymen's terms, a dollar won't buy as much year to year as inflation goes up. The higher the inflation rate, the less you can buy with that same dollar.
Since 2016, the general inflation rate in the United States has been between 1.9% and 2.3%. That means something that cost $1.00 last year will cost $1.02 cents next year. That 2 cents doesn't seem like much unless you extrapolate that inflation out over multi-million dollar purchases. Something that costs $1,000,000.00 today will cost $1,023,000 next year. That's an increase of $23,000 for the same item over a 1 year period.
Everyone faces loss of purchasing power through inflation. However, churches considering a construction project need to be aware of a few things. While the general inflation rate in the US has been hovering around 2.0% for several years, the CONSTRUCTION INFLATION RATE has been much higher. In 2018 and 2019, the construction inflation rate in the US was 5.0%. It's even higher in certain cities. And, despite recent economic downturns, that construction inflation is forecast to be between 3.8% and 4.4% for the next 3 years. Let's do our math again. If you budgeted for your building last year, it will cost you $1,050,000.00 to build it this year. If you thought it would cost you $1,000,000.00 to build your new building this year, it will cost you between $1,038,000.00 and $1,044,000.00 next year (at projected inflation rates). I don't know about your church, but most churches we work with would notice an unexpected $40,000.00 or $50,000.00 increase in a project.
To add to that, many other fees (like architects) associated with a construction project are based on a percentage of the construction costs. So, you budgeted $1,000,000.00 to build your new facility, but you decided to wait until next year. That means that you not only have a 4.0% increase in the building costs, but now you have an increase in how much you pay your architect. It also means, in some jurisdictions, you have an increase in the amount you pay for building permits. And, it means that you are increasing the replacement value of the project for insurance costs.
You see my point, don't you? Churches often want to develop a budget for a project and then wait a while, sometimes years, before they actually begin construction. So, they work toward a $1,000,000.00 building that in 2 short years has increased to a $1,090,000.00 building. In three years it is a $1,138,000.00 building.
So, what is a church to do? If you are considering a building project, get started now. Prices are only going up for the foreseeable future. Hire your architect. Hire your general contractor. Lock in a Guaranteed Maximum Price, and get your new facility started. The longer you wait, the more it's going to cost you.