Construction Material Costs rise 20% in 2021
In spite of moderating prices in December, construction material costs went up nearly 20% in 2021. The Associated General Contractors of America (AGC) has released results of a survey that showed that material costs and supply chain issues are at the top of contractor’s concerns for 2022. Material prices are not likely to rise nearly as much this year but volatility and shortages are likely to remain a problem.
Earlier in 2020 and into 2022, the pandemic put the brakes on virtually all types of business.
Construction, especially single-family construction was an exception. The pandemic actually created high demand for home builders and therefore a great need for supplies, especially lumber. Super-low interest rates and low available home inventory created a hot market. Since construction was considered an “essential” business, many builders have done well, even by normal standards. Consumers also found themselves with a lot of time at home and stimulus money to inspire them to do long put-off DIY projects. Demand from consumers took home improvement stores by surprise and shortages eventually followed.
Between the unexpected rise in demand for materials and supply chain shortages, prices of course went up. While it was unclear how long the imbalances would last, now at the beginning of 2022 we understand that they have had a greater impact than most could have expected.
The AGC Survey found that material costs were a top concern for 86% of surveyed contractors and supply chain and availably were listed as a second concern by 77%.
“The producer price index for inputs to new nonresidential construction—the prices charged by goods producers and service providers such as distributors and transportation firms—increased by 0.5 percent in December and 19.6 percent in 2021 as a whole. Those gains topped the rise in the index for new nonresidential construction—a measure of what contractors say they would charge to erect five types of nonresidential buildings, Simonson noted. That index climbed by 0.3 percent for the month and 12.5 percent from a year earlier.” *
Looking at other materials the price index for lumber and plywood rose about 13% and 18% respectively. Steel mill products rose just over 127% for the year. The index for aluminum, copper, and brass mill shapes all rose by 24% or more.
Rising materials costs may set back the larger economy if they aren’t contained. 2022 is expected to be a year of strong economic growth for the industry. Demand for housing is still very strong and single-family housing has been under-built for over a decade, meaning there is strong organic demand, besides pandemic-related demand.
The AGC has urged the Biden administration to reconsider plans to double tariffs on Canadian lumber as well as look at reducing other tariffs that affect material prices. Late last year tariffs were reduced on steel and aluminum from the European Union in exchange for a reduction on tariffs by the EU on American imports.
2022 should be a good year for contractors. Demand is strong and the infrastructure bill will create growth among many sectors of the industry. Challenges with labor, material costs, and supply disruptions will be top of mind for most, especially in the first half of the year.
* The Associated General Contractors of America