Application Of Economic Indicators In Predicting Construction Cost Escalation For Residential Buildings In Nigeria

Abstract

In an effort to estimate cost of construction, estimators and contractors have
attempted to utilize a variety of prediction models. Most models have proven
either too complex or unreliable in application of construction pricing. Often
estimators are left to their own "best guess" when forecasting escalating cost of materials, labour and equipment. The unreliability of these models are due in part to the fact that projects are short in duration and there are too many factors that can demonstrate a high relational significance to construction cost if they are to be useful variables in a prediction model. By the division of construction (building) cost of adopted building types against selected floor areas from selected States in the six geographical zones of Nigeria, the mean construction cost per meter square over time were computed. These costs shared a relational significance to selected macroeconomic indicators. With the aid of a multiple regression analysis, a model was formulated. The results of the Multiple Regression equation, Y = 1206.035 + 6.030X1
- 4.732X2 + 118.151X3, suggest that 88% of the variation in Y values can be explain by the variation in the values of X1, X2, X3 (where Y is the mean Construction Cost per meter square, X1 is the Inflation Rate, X2 is the Interest Rate and X3 is the Exchange Rate). Application of the knowledge of this relationship in the prediction of cost escalation can be useful. It could also be considered a marketing tool for the contractor that applies the technique.