Building materials are always shooting up the price of construction. The total project construction cost then rises the professional fees of architects, builders, boosting the overall expense when building a home. What are the drivers of these prices?
Building materials like most commodities rise in price due to inflation. However, these items are always in demand with several raw materials stemming from a finite source. Requiring much energy and processing to produce, it will naturally increase in price when electricity and gas prices do. The supply and demand of the public also greatly dictate the cost of materials. If there is a shortage of labor or supply due to a disaster or calamity, prices will go up to meet the demand.
A Look into the Material World
The basic principles of economics in supply and demand prevail despite any situation the world is in. If there i a high demand for a good many people are trying to get their hands on, the price will increase. When not many people care for a certain product, the demand is down and the price will decrease.
Builders and contractors will naturally add a percentage of markup when quoting materials to accommodate the fluctuation of material prices throughout the year. Pick their brain at when there would be a “low season” versus a peak season for buying materials and perhaps you could time your construction to then. In temperate countries, cooler months are “off season” for building materials as the weather makes for difficult working conditions and storage outside. This is also the reason the price shoots up when the weather grows warmer. (1)
A universal fact regardless of the time of year is that several of our building materials come from a limited resource. Due to illegal logging , mining and malpractice in harvesting raw materials, several sustainable practices have been put into place. These call for additional regulations and people to enforce these sustainable practices, spiking up the price. However, these same rules of sustainability also protect our supply and make sure the source doesn’t run out!
Being harvested in its raw form, materials undergo several processes to become the finished building materials for construction. From extraction, to processing, finishing and packaging for final sale, much labor, energy and other resources have already been used. Not to mention transportation. Imagine if the stone was sourced from a far off place, transporting heavy items would require several trips back and forth of a truckload, greatly tapping into petrol.
Other factors would be whether the species of wood is rare and endangered or if the material is imported from another country. Foreign goods require additional permits and packaging to arrive unscathed. They also need storage and manpower to temporarily store goods at the docks. A shortage of container vans for storage can impose huge costs and wastage in shipping delays and overtime wages. (1)
With new technology like nano-coating, anti-bacterial, microbial or self cleaning films, these treatments will naturally make the item and price more premium. Materials can already have default treatment for anti-pest, fire or water resistance as a building standard by law.
Effect of Calamities, Disasters & Pandemic
Snow storms and typhoons can create extreme delays in blocking off transportation routes to and from extraction sides. Wildfires can lead to an instant deforestation and loss of supply. A mess in logistics is often the culprit in price spikes of materials.(2)
An unforeseen factor would be the sudden boom for home improvement projects when the world was put into lockdown due to the COVID-19 pandemic. Drywall and gypsum was up by 20% and there was a shortage of wood, copper and all things metal. Not so much concrete and paint as these entailed bigger renovations, but materials for small DIY projects ran out. (3)
The construction industry is still recovering from these erratic supply and demand patterns inshipping as well as with the lockdown halts. These resulted in bulk buying from contractors to maintain operations building. This in turn brought hardware stores at a stalemate, unsure whether to over order to meet the shortage but risk that high demand suddenly dropping and now being with an overflow of storage unable to accommodate new items. (4)
The pandemic also caused significant delays in production due to a huge shortage of workers. On and off lockdowns from ports have also made it difficult to expect your shipment to arrive on time. (2)
These all in turn create a “ripple effect.” As with the Ukraine war, the oil and gas prices will affect transport of materials. A price hike in steel would snowball, as it is present in most hardware, appliances and machinery tools, this would affect other building materials as well.
This has led to exploring material alternatives, whereas composite panels were normally considered expensive, with the big price increase of steel may now be considered an option. With lumber increasing at 30%, perhaps engineered wood or its previously “pricey” counterparts can now be looked at as a viable option. (4)
Political Trading & Global Relations
“It’s not just the increased number of building projects creating a shortage, there are political and trade issues at play too.” – (5)
Being a global economy, we were used to openly sharing resources with other countries and strategizing what materials we could get cheaper elsewhere. The sudden lockdowns happening anywhere at any time have created a domino effect on its own. The data below was gathered from ”Narrowing margins: Cost of building materials soars. What’s causing a global increase in the price of building materials?”
- North America: As building projects return and developers gain confidence in rebuilding, there is a construction boom leading to a big demand for building materials. (Mark Fergus FRICS, US: Regional vice president at construction management consultancy Cumming.)
- Hong Kong & China: The mini lockdowns have caused logistics to be greatly affected. Factories now have to rethink and recalculate their rates of production to prevent an excess of stock unable to ship out quickly. (Rodney Moulder MRICS, HK: head of real estate for the consultancy Turner & Townsend, focusing on China’s Greater Bay Area.
- Australia: A big demand in labor and the great wildfire at the beginning of 2020 brought up the demand increase of materials. Having sourced a lot of their products from China, when China went into lockdown this cut off their supply. Even after pivoting to source farther (therefore more expensive) switching to Europe, didn’t last long as they went into lockdown shortly after. This taught them the “dangers of putting all eggs in one basket. One should diversify supply chains and manufacturing.” (Nick Deeks FRICS, Australia: managing director of WT Partnership Quantity Surveyors and Construction Cost Consultancy)
Time for Innovation?
The pandemic merely heightened what we typically experience over a course of a few years now compressed into months. “Business as usual” is no longer the go to for material supply if contractors want to stay afloat. We have to be creative on how we can source locally to also reduce costs of transportation, packaging and treatment while avoiding long term delays.
Perhaps this is the time for new eco-alternative materials to come to life? Is it time for an exploration of hempcrete, bamboo or recycled bottles for the building industry to survive? What do you imagine the built environment will look like after this pandemic?
- Butterworth, W. (2021, November 25). Why is lumber so expensive? (top 10 reasons). The Cold Wire. Retrieved March 2022, from https://www.thecoldwire.com/why-is-lumber-so-expensive/
- Alexander, I. (2022, February 21). Why lumber prices are so high-and latest on when they might decline. Newsweek. Retrieved March 28, 2022, from https://www.newsweek.com/why-are-lumber-prices-so-high-are-they-going-down-2022-1681105
- Hope, H. (2021, March 3). Why have construction materials spiked in price? cbs8.com. Retrieved March 2022, from https://www.cbs8.com/article/news/local/why-construction-materials-are-going-up-in-price/509-94ff684c-71a5-4f56-99c2-8f872950744e
- Bousquin, J. (2021, February 17). Skyrocketing steel, lumber costs threaten to slow construction jobs. Construction Dive. Retrieved March 2022, from https://www.constructiondive.com/news/skyrocketing-steel-lumber-costs-threaten-to-slow-construction-jobs/594969/
- Pertusini, G. (2021, June 21). Narrowing margins: Cost of building materials soars. What’s causing a global increase in the price of building materials. Retrieved March 2022, from https://ww3.rics.org/uk/en/modus/built-environment/construction/narrowing-margins–cost-of-building-materials-soars.html