Cohousing-L Mailing List: Re: Consumer price inflation at 2.9%

[Philip Dowds (rphilipdowds]

In the construction engineering world, the generally accepted premise for 
construction cost inflation is about double that of the consumer price index.  
So if you’re seeing about 2% CPI per annum, 4% per annum is reasonable for 
construction pricing.  BUT AND HOWEVER … This rule of thumb is derived from 
major commercial construction contracts, and may not tie well to home fix-it 
work.  Furthermore, construction pricing is interest rate sensitive and demand 
elastic.  If contractors see themselves as “very busy”, their bids may be twice 
as high as when they see themselves as “very slow”.  Finally, there are always 
bidding anomalies: If you get bids from four qualified bidders, it’s not 
unusual to see a bid spread of 25% to 50%, sometimes more.  (Accept the low bid 
at your own risk.)

The reserve consultant we hired recommended 3% per annum as good construction 
inflation rate for the long haul.  That is, if today's estimate for the new 
roof is $200,000, it’s reasonable to expect $269,000 ten years from now.  But 
this is just a planning number, not a guarantee of anything.  No matter what 
kind of reserve plan you adopt, ugly and pleasant surprises, upgrades in code 
and technology, the bidding climate in the year you choose to act, and your own 
mind-chaninging, will all combine to push your reserve plan off course, one way 
or another.  Don’t fuss too much over picking the perfect inflation rate; 
instead, make sure your plan includes on-going monitoring and adjustment.

Thanks,
Philip Dowds
Cornerstone Village Cohousing
Cambridge, MA

mobile: 617.460.4549
email:   rpdowds [at] comcast.net

> On Aug 16, 2018, at 10:52 AM, Swenja Ziegler <zieswenja1 [at] gmail.com> 
> wrote:
> 
> Brian - not quite sure where you got the 8% inflation figure from -
> official numbers are 2.9 % for the year ending in July 2018.
> https://www.usinflationcalculator.com/inflation/core-inflation-highest-in-decade-consumer-prices-rose-0-2-in-july/100016131/
> 
> Swenja
> 
> On Thu, Aug 16, 2018 at 3:17 AM <cohousing-l-request [at] cohousing.org> 
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>>   1. Re: investing reserve funds (Brian Bartholomew)
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>> ----------------------------------------------------------------------
>> 
>> Message: 1
>> Date: Thu, 16 Aug 2018 05:01:33 +0000 (UTC)
>> From: Brian Bartholomew <bartholomew.brian [at] yahoo.com>
>> To: <cohousing-l [at] cohousing.org>
>> Subject: Re: [C-L]_ investing reserve funds
>> Message-ID: <767083831.8846532.1534395693439 [at] mail.yahoo.com>
>> Content-Type: text/plain; charset=UTF-8
>> 
>>> Keep in mind, that if your money isn't earning interest somewhere,
>>> you are actually losing money every year.
>> 
>> I hear consumer price inflation is running 8%/year.  Does a roof wear
>> out faster or slower than 8%/year?  Maybe you would be happier with a
>> new roof now, than with a new roof in 15 years after 2/3 of the
>> purchasing power of your reserve fund has been taken by inflation.
>> Likewise for commercial kitchen appliances, heating and air, plumbing,
>> paving, well drilling, solar power, or other durable goods which might
>> wear out and lose value more slowly than the dollar.
>> 
>> Brian
>> 
>> 
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