Construction is a vital aspect of any society. It is responsible for expansion, be it in terms of residential, commercial, or public purposes. However, in recent years, there’s been a drastic increase in the cost of construction.
If you are interested in knowing the different reasons behind the sudden rise in construction cost in 2021, then you have come to the right page. In this article, you will learn about the different factors contributing to the rising construction cost.
The Reason Behind the Rising Construction Cost in 2021
It’s easy to say that the biggest reason why there’s a sudden spike in construction cost is because of the Covid-19 pandemic. This is because it has brought significant delays in terms of logistics and manufacturing involving construction material.
Moreover, with social distancing restrictions, construction sites’ progress are falling behind their schedule. When this happens, the constructors are forced to spend more on employing people and other resources to keep the project going.
Here are the specific factors that affect the cost of construction in 2021:
In 2020, the unemployment rate was an all-time high in the past 10 years at 15%. However, around 220,000 and 330,00 construction jobs were vacant during this same time, which is at the same figure prior to the pandemic.
This only goes to show how difficult it is to find skilled labor in the construction industry. As a result, when contractors do find them, they have to pay their labor a premium. This increases the overall construction cost.
Besides that, the lack of manpower can also delay the construction project. The longer the project is ongoing, the more money has to be spent. Although compared to construction materials, the labor cost increase is not that quick.
If you notice, one of the most basic and widely used materials in the construction industry is lumber. However, in 2021, the price of lumber will double compared to its price in 2020.
One of the reasons why lumber prices have increased during the pandemic is because there is more remodelling and residential construction. More people suddenly have more time in their hands, and the need for a bigger and more conducive space is higher because people spend the majority of their time at home.
Aside from that, the cost of lumber has soared because it reduces mill output. This is mainly due to logistic issues brought upon by the pandemic.
Copper price reached an ultimate high in 10 years in just the first quarter of 2021. This is a significant factor in the rising cost of construction since many materials such as water pipes and electrical wires make use of copper.
Moreover, there’s a prediction that the demand for copper will be higher in the coming years because more people will opt for electric transport and green energy technology. To give you a better context, an average home in the US alone uses about 439 lbs. Of copper, while a traditional car uses around 18 to 49 lbs. Meanwhile, battery-operated cars use 814 lbs. of copper while electric powered ones use 183 lbs. of copper.
In the US, the current steel prices are 70% higher compared to the global market price. Compared to China and Europe, the prices are 80% higher than how they were before the pandemic started.
The US has imposed the 2018 steel tariff. This makes it more affordable to import steel instead of sourcing it out from domestic manufacturers. However, due to border closures and logistic challenges because of the pandemic, steel importation in the US will be at an all-time low in 2021.
Since it’s difficult to procure steel due to these challenges, many contractors are forced to buy the more expensive steel from local manufacturers. By doing so, they are paying more than what they normally would for a particular project, affecting the overall cost of the construction.
Historically, there’s a pattern of steel prices increasing when there is a world economic crisis happening. This is exactly what happened in the last recession.
Crude oil is widely used in the construction industry since it is used to power equipment and machinery. However, in 2020 alone, the cost of crude oil increased by over 80%. The trend continued to increase throughout 2021, especially as more people are resuming pre-pandemic behaviours such as traveling.
Will Construction Cost Continue to Soar?
As mentioned, the biggest reason behind the sudden spike in construction cost is the pandemic. This is why experts believe that the prices of construction materials are more likely to go back to normal once the pandemic is contained. With how vaccination efforts are going in first-world countries, it is more likely that construction costs will be back to the pre-pandemic prices by 2023.
However, suppose the new Covid variants appear, and the vaccination programs do not go as planned. In that case, the rising trend in construction costs has a possibility to continue.
The rise in construction cost is highly related to the unprecedented conditions caused by the Covid-19 pandemic. As of the moment, many contractors are forced to follow the prices they signed pre-pandemic, which significantly affect their profit margins. From the property owner’s perspective, starting a build right now will also be significantly more expensive.
With how things are right now, if you plan to construct a new home, you might want to wait while things worldwide settle down a bit. This is because your budget for your dream home might fall short.
The same thing applies if you are planning on building a commercial building. If you can, delay your plans for a bit because of the rising cost and how the economies are worldwide. It seems like because of the pandemic, more and more are closing instead of opening new businesses. Hence, if you open commercial spaces with plans to have it as a business rental, it might be difficult for you to find tenants.