Why Do Construction Materials Costs Keep Going Up?
It seems like materials costs are going up every single day.
Across Europe, materials costs have reached a 40-year high – with many contractors not able to purchase some materials at all.
During Covid, many supply companies didn’t just slow down – they went bust, and new ones that are planned to open will only come online in 2023 and 2024.
This price volatility is encouraging many suppliers and contractors to stockpile materials, keeping them out of the marketplace, pushing prices higher again.
Governments around the world are playing catchup on infrastructure, building many new roads and houses.
All this is pushing materials costs through the roof.
How high has inflation driven construction materials costs?
- Sawed and planed timber is up 54% since last year.
- Cement production slowed by 11.4% during covid – and suppliers are warning of another shortage this year
- Last summer, British Steel stopped accepting new orders because demand was so high – however, we expect steel to be available throughout 2022 as supply eases.
- Roofing materials are more expensive than ever, with 92% of roofing contractors reporting an increase in prices.
- Crude Oil is up 80% since November 2020
Inflation in Wages
Up to half the cost of any construction project goes on wages – and they’re going up.
Last year in the UK, construction employee wages rose as much as +15%.
The increased cost of living, especially the cost of fuel, is forcing many companies to pay their workers more. And many companies are having trouble securing employees throughout a project.
This is having a huge impact on the bottom line of many projects like yours.
Borrowing Is More Expensive
Inflation has made everything more expensive. To slow inflation, the EU are making borrowing money more expensive by raising interest rates.
This means that the amount a contractor must pay back for the same loan will go up – making their projects less profitable.
What will happen next?
Most experts think that materials prices will stop rising by the end of 2022, and only start to fall again in 2023 as new supply businesses come online.
Bidding continues to rise, as bid prices in the UK have already gone up 8.5% in the last year.
Wage inflation will only stop when the cost of living starts to come down – and nobody expects that to happen until at least 2024.
What Should I Do?
Be aware that your materials prices might go up while you’re in a contract – consider factoring in an extra 10% into your price offer as a contingency.
For new bids: don’t bid dangerously low just to secure a contract – you may be left exposed if your costs rise.
Secure a fixed interest rate for any loan for a project, otherwise your repayments may unexpectedly go up.
Prefer short-term contracts to long-term ones – nobody knows what the future holds, and you may be on the hook to deliver at a fixed price, even if your costs go up again.
Use LiveCosts to control your construction costs.