The story of 2021 was largely one of skyrocketing construction costs.
The cost of building materials increased 14.1% in 2021, according to the Bureau of Labor Statistics.
Those expenses translate to increased construction prices.
As we start a new year, what can the construction industry expect when it comes to construction costs?
Is this the right year to start building a home, or remodel?
Read on to learn about what homebuilders, remodelers, and homebuyers can expect after the turbulent year that was 2021.
What’s Behind the Skyrocketing Construction Costs?
Last year’s high home construction costs resulted from several factors, and many of them were related to the pandemic.
Staffing shortages were one factor.
Many people used the pandemic to remodel their homes, and the spike in demand meant that there often weren’t enough workers.
Logistical issues drove up the price of many home building materials.
During the initial 2020 shutdown, many companies drastically cut the production of lumber.
Imports also slowed drastically as overseas factories anticipated a slowdown in demand.
What actually happened with demand, though, was quite different.
Homebound families began ordering supplies in record numbers, and it has taken nearly two years for the supply lines to catch up.
Those delays have meant increased demand (and increased costs) for many materials that are used for building a home.
Lumber hit record levels last year, and it was due to trade tariffs, high demand, and low lumber output, according to the Cato Institute.
Will Construction Costs Continue to Rise?
This year will likely not be as volatile as 2021, but construction costs, according to many prominent forecasters, will remain above pre-pandemic levels.
The factors that will keep construction costs at high levels are the same factors that shaped 2021.
Labor Shortages
Upwards of 40% of construction costs come from labor.
The nation continues to be hampered by a shortage of construction workers. By some estimates, the construction industry needs an additional 2.2 million workers.
Labor shortages tend to drive up the cost of labor, which adds to the cost of building and remodeling homes.
Inflation
Inflation is on the rise, and that is bringing up the cost of everything from groceries to housing supplies.
Inflation recently surged at the highest rate since 1982.
While the resulting price increases affect all commodities, it will certainly be a factor that keeps home construction costs higher than usual.
Transportation Backlogs
If you are trying to upgrade your kitchen, you may have noticed that shipments for certain items are significantly backlogged.
The lingering effects of the COVID shutdowns and worker shortages due to illness have caused persistent transportation backlogs that are nowhere near catching up to demand.
Semi-truck backlogs have been particularly bad in recent months.
Some of those delays aren’t the fault of truck drivers.
Delays at ports have left many deliveries caught in a backload of shipping containers.
Expect high costs and delays related to backlogged transportation well into this year.
Lumber Prices
For most homes, the largest material expense is lumber.
Watching the price of lumber over the past year has been like watching a rollercoaster.
Last year, the price per thousand board feet plummeted from a May high of $1,515 to $389 a few months later.
Demand has since brought the price of lumber up again, and there’s no guessing what could happen in 2022.
Some of the price fluctuations are due to natural disasters that hampered the transportation of lumber.
Heavy rainfall in British Columbia last year led to landslides that paralyzed lumber shipments for weeks on end.
The Silver Lining for Homebuilders
High costs related to homebuilding are a headache for custom home builders and homebuyers.
The only real winners are the suppliers. Fortunately, there’s a reason for hope that prices will break somewhat this year.
Fiscal Policy to Address Inflation
Inflation remains a concern in 2022.
The omicron variant is driving consumers to shop for food instead of dining out, which can lead to food commodity price increases.
The Federal Reserve is weighing fiscal policy options, like increasing federal lending interest rates, as a means of addressing inflation.
Improving Logistics
Ports have begun charging shipping companies for every day that their supplies are not picked up.
The step is intended to motivate those companies to pick up containers that are clogging important shipping routes.
Truck driver salaries are on the rise.
Even with big salary hikes, it will take months if not years for the industry to reach the employment levels that are needed.
Still, the increase in wages should play a positive role in mitigating ongoing transportation woes.
The COVID Factor
Early data shows that the omicron variant is less deadly and less likely to cause severe disease than past COVID viruses.
That may help tamper fears of COVID-related delays and economic fallout.
Around 62% of the U.S. population is vaccinated, and new booster shots are adding further protections to adults and children.
As vaccinations increase, the biggest factor that led to the increase in home construction costs may finally become less of a concern.
Stay in the Know About Construction Costs
Several factors point toward a year of lower volatility when it comes to homebuilding costs.
Even with those positive trends, expect basic commodities and labor costs to be higher than pre-pandemic levels for most if not all of this year.
Don’t let construction costs keep you from enjoying the joys of renovating your home.
Whether you are looking to add on an addition, upgrade your kitchen, or build a new home from scratch, we’re the residential luxury home remodeler and home builder that you can rely on.
Contact us today so we can help you plan the home of your dreams.
Are you looking for a custom home building in Mesa AZ to help execute your project? The team at Mariano & Co. is committed to providing each client with a 5-Star experience. Call (480) 287-4096 or request an estimate online today!
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