The rising cost of building materials has driven up construction costs by as much as 10 percent in the last year. It’s an alarming new trend that could hurt contractors who are already dealing with an industry-wide labor shortage.
Building Materials Costs Eat into Contractors’ Profit Margins
“Prices jumped at double-digit annual rates for metals, lumber and plywood, and diesel fuel, while ready-mixed concrete, asphalt paving and roofing materials also had unusually large increases,” said the Associated General Contractors of America’s chief economist, Ken Simonson. “The cost of all goods used in construction rose 8.8 percent from May 2017 to May 2018, the steepest annual increase in nearly seven years.”
Economists predict this may only be the beginning of a troubling trend.
Yearly Increase in Building Material Costs
There was an across-the-board jump in materials costs between May 2017 and May 2018, according to the Associated General Contractors of America.
- Diesel fuel: 44.5 percent
- Aluminum mill shapes: 17.3 percent
- Lumber and plywood: 13.9 percent
- Copper and brass mill shapes: 13.8 percent
- Steel mill products: 10.5 percent
- Asphalt felts and coatings: 8.9 percent
- Ready-mixed concrete: 6.5 percent
- Paving mixtures and blocks: 5.2 percent
Contractors Caught in Middle of Price Increases
The rise in the cost of building materials is now outpacing increases in the price of new construction. As a result, the profit margins of contractors across the country are facing a severe squeeze.
For example, an analysis by the National Association of Home Builders estimated that the average cost to build a home may soon increase by as much as $9,000. In order to remain profitable, contractors will have to pass along these costs to customers.
This spike in costs was largely unexpected by building contractors. According to one survey, 44 percent of construction professionals polled reported that project costs have been higher in recent months than they had anticipated.
New Tariffs may hurt Contractors even more
The rising costs of building materials may only worsen in the coming months. New federal tariffs could further increase the cost of common building materials like steel, lumber and aluminum.
“Contractors are having to pay more for many construction materials and workers yet appear to have limited ability to pass those costs along to their clients,” said Stephen E. Sandherr, the Associated General Contractors of America’s chief executive officer. “The President and Congress can help by removing costly tariffs on key construction materials and boosting investments in career and technical education programs.”