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Cost of Materials Restricting Home Construction Growth

According to an analysis by the Associated General Contractors of America (AGC), unprecedented price increases for a wide range of goods and services used in construction pushed up contractors’ costs by a 26.3% year-over-year from June 2020 to June 2021.

And while the jobs market has seen marked gains in June, the rise in the price of materials has stunted the construction sector, making it difficult for many construction firms to benefit from the re-opening of the economy, and undermining the ability to add new, high-paying jobs.

“Contractors have been pummeled in the past year by cost increases, supply shortages, and transport bottlenecks,” said Ken Simonson, Chief Economist for the AGC. “Meanwhile, falling demand for many types of projects meant contractors could not raise bid prices enough to recoup these expenses.”

Further impacting the housing sector’s need for increased inventory and the construction of new homes, there were double-digit percentage increases in the selling prices of materials used in every type of construction. The producer price index for lumber and plywood doubled from June 2020 to last month, although prices for lumber have declined since the index was computed. The index for steel mill products climbed 87.5%, while the index for copper and brass mill shapes rose 61.5%, the index for aluminum mill shapes increased 33.2%, and the index for plastic construction products rose 21.8%. The index for gypsum products, such as wallboard climbed 18%. The index for prepared asphalt and tar roofing and siding products climbed 12.1%, while the index for insulation materials rose 10.1%.

The producer price index for new non-residential construction—a measure of what contractors say they would charge to build five types of non-residential buildings—rose only 3.4% over the past 12 months. That was a small fraction of the 26.3% increase in the prices that producers and service providers such as distributors and transportation firms charged for construction inputs, Simonson noted.

The Bureau of Labor Statistics (BLS) has reported that the American economy added 850,000 jobs in the month of June, while the Department of Labor reported that for the week ending June 26, the advance figure for seasonally adjusted initial unemployment claims was 364,000, a decrease of 51,000 from the previous week's revised level, marking the lowest level for initial claims since March 14, 2020 when it was 256,000.

“Construction firms will have a hard time adding new staff while they are paying more and more for many of the products they need to build projects,” said Stephen E. Sandherr, AGC’s CEO. “Washington officials can take steps that are likely to have an almost immediate impact on materials prices, but they need to act.”

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.

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