Tariffs, Labor Drive Senior Housing Construction Costs Up 6% to 8%

Senior housing construction costs have surged between 6% and 8% over the last year for various types of projects, driven by labor market dynamics and new tariffs on materials such as steel and aluminum.

For a mid-level assisted living project, Winter 2019 costs are generally ranging between $180 and $233 per gross square foot, according to the latest analysis from Des Moines, Iowa-based construction firm The Weitz Company. That compares to $170 to $212 a year ago.

Those costs include general conditions, insurance, tax, bond and fee, but not site costs. Costs will be generally be higher in larger metro markets and lower in less competitive markets.

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Independent living costs are also on the upswing. Last winter, mid-level IL units were running between $141 and $171 per gross square foot to construct; that range is now $156 to $186. Independent living common spaces have become more costly to construct as well. Last year, costs for IL common spaces were running between $231 and $299 for mid-level projects, and now they are between $256 and $325.

For its analyses of construction costs, Weitz separates IL unit costs and common space costs. That’s because in higher acuity settings such as assisted living or skilled nursing, the common spaces tend to be more uniform and modest across projects, whereas some independent living projects have much more elaborate and costly dining areas, activity rooms and the like, Larry Graeve, Weitz senior vice president, told Senior Housing News.

Construction costs have been steadily rising in senior living due in large part to a labor shortage, but there are signs that this could be alleviated somewhat in the months ahead. Data from the Architectural Billing Index suggest that there are fewer new building projects of all sorts — not just senior living — in the pipeline at the moment, Graeve said. Data from Engineering News-Record and the Construction Industry Confidence Index bear this out as well.

Meanwhile, figures from the National Investment Center for Seniors Housing & Care (NIC), shows construction starts are also decreasing in senior housing specifically.

Still, that trend does not hold across all markets, Graeve pointed out.

“Here’s my hunch,” he said. “There’s still demand in a lot of markets for senior living. Even if other market segments cool or soften, there could still be strong senior living in some markets and those [construction] prices might come down because there are [fewer] other projects drawing contractor pools away.”

Tariffs put in place by the Trump administration are the other major factor causing a spike in construction costs. The tariffs apply to building materials that are hard to avoid, so it’s difficult to adjust projects to avoid these higher costs.

“If you had aluminum windows and went to vinyl, you’ll see a savings, but there are not too many cases where you would [be able to see] a significant change the overall costs of the job.” Graeve said. “Wood is being tariffed out of Canada, there’s steel/aluminum tariffs, so you’re kind of stuck. Even a concrete building will be affected because of reinforcing steel.”

Faced with rising costs, some senior living developers have been putting extra effort into value-engineering projects and trying to lock in pricing.

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