Virtually every economic sector is still feeling the effects of the global pandemic—in many industries, the aftershocks of the challenging year are expected to continue for years to come. The construction industry in particular continues to experience volatility, especially when it comes to cost. Construction material prices are rising steeply due to a whole host of reasons, including staffing difficulties, supply chain issues and unexpected demand. Here’s a brief overview of the current situation.
Skyrocketing costs are not short-term problems
Current conditions in the industry have surprised both contractors and their clients alike. While it may seem natural to assume that contractors will raise their prices to cover the skyrocketing cost of building materials, it’s simply not the case, since demand for construction initially dipped during the pandemic. This caused a ripple effect in the supply chain: Homebuilders no longer needed building materials, so they canceled orders. Construction material production companies started to come back online during the pandemic, but they weren’t able to reach full capacity due to workers being ill, quarantining or caring for family members at home.
In short, there are some serious snags in the supply chain that can’t be rectified anytime soon. Since current housing starts sit at levels nearly 15 to 20 percent higher than they were last year, there’s huge additional demand for wood products and other building materials. Rapid shifts in supply and demand will take some time to even out in the long term.
There’s significant demand for new housing
Building contractors understand that there’s a big disparity in the construction industry right now. Residential construction spending has jumped markedly, while the commercial sector has slumped. The result is a downward pressure on contractors to pass along material cost increases, placing the burden for the price of construction materials on their clients.
Contractors and homeowners need to work together in the face of construction industry volatility
While individuals can’t fix supply chains by their own actions, there are things that both contractors and their clients can do to alleviate the skyrocketing costs of building materials and make sure that both parties are satisfied with the building process. Clients can make adjustments to the design and completion date, as well as make payments to accommodate or work around construction roadblocks. For projects that haven’t been started, clients must have realistic expectations—many people are aware of the increased cost of materials and should plan their budget accordingly.
Contractors need to provide project owners with timely information about supply chain issues and material prices. One way that contractors can help their clients is by adding price-adjustment clauses to contracts to accommodate for swings in material prices. In the end, it’s all about flexibility—as the world adjusts to life after the pandemic, both parties need to be flexible and realistic with their expectations.
Construction material prices, just like all other commodities, are impacted by basic supply and demand. With the effects of the pandemic still lingering, it’s safe to say that the construction industry will continue to experience volatility at least in the short term. Contact WSL Incorporated to learn more about recent changes in the construction industry.