Unprecedented price increases for a wide range of goods and services used in construction pushed up contractors’ costs by a devastating 26.3% from June 2020 to June 2021, according to an analysis by the Associated General Contractors of America of government data released today. Association officials cautioned that rising materials prices are making it difficult for many construction firms to benefit from the re-opening of the economy, undermining the sector’s 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, the association’s chief economist. “Meanwhile, falling demand for many types of projects meant contractors could not raise bid prices enough to recoup these expenses.”
The producer price index for new nonresidential construction—a measure of what contractors say they would charge to erect five types of nonresidential 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.
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% and the index for aluminum mill shapes increased 33.2%. The index for plastic construction products rose 21.8%. The index for gypsum products such as wallboard climbed 18.0%. The index for prepared asphalt and tar roofing and siding products climbed 12.1%, while the index for insulation materials rose 10.1%.
In addition to increases in materials costs, transportation and fuel costs also spiked. The index for truck transportation of freight jumped 15.4%. Fuel costs, which contractors pay directly to operate their own trucks and off-road equipment, as well as through surcharges on freight deliveries, have also jumped.
Association officials urged Congress and the Biden administration to act quickly to address rising materials prices. They repeated their calls for the president to remove tariffs on key construction materials, including steel and aluminum. They also urged Washington officials to explore other short-term steps needed to improve the supply chain for key construction materials.
“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, the association’s chief executive officer. “Washington officials can take steps that are likely to have an almost immediate impact on materials prices, but they need to act.”
View producer price index data. View chart of gap between input costs and bid prices.
Related Stories
Industry Research | Jan 23, 2024
Leading economists forecast 4% growth in construction spending for nonresidential buildings in 2024
Spending on nonresidential buildings will see a modest 4% increase in 2024, after increasing by more than 20% last year according to The American Institute of Architects’ latest Consensus Construction Forecast. The pace will slow to just over 1% growth in 2025, a marked difference from the strong performance in 2023.
Construction Costs | Jan 22, 2024
Construction material prices continue to normalize despite ongoing challenges
Gordian’s most recent Quarterly Construction Cost Insights Report for Q4 2023 describes an industry still attempting to recover from the impact of COVID. This was complicated by inflation, weather, and geopolitical factors that resulted in widespread pricing adjustments throughout the construction materials industries.
Hotel Facilities | Jan 22, 2024
U.S. hotel construction is booming, with a record-high 5,964 projects in the pipeline
The hotel construction pipeline hit record project counts at Q4, with the addition of 260 projects and 21,287 rooms over last quarter, according to Lodging Econometrics.
Multifamily Housing | Jan 15, 2024
Multifamily rent growth rate unchanged at 0.3%
The National Multifamily Report by Yardi Matrix highlights the highs and lows of the multifamily market in 2023. Despite strong demand, rent growth remained unchanged at 0.3 percent.
Self-Storage Facilities | Jan 5, 2024
The state of self-storage in early 2024
As the housing market cools down, storage facilities suffer from lower occupancy and falling rates, according to the December 2023 Yardi Matrix National Self Storage Report.
Designers | Dec 25, 2023
Redefining the workplace is a central theme in Gensler’s latest Design Report
The firm identifies eight mega trends that mostly stress human connections.
Contractors | Dec 12, 2023
The average U.S. contractor has 8.5 months worth of construction work in the pipeline, as of November 2023
Associated Builders and Contractors reported today that its Construction Backlog Indicator inched up to 8.5 months in November from 8.4 months in October, according to an ABC member survey conducted Nov. 20 to Dec. 4. The reading is down 0.7 months from November 2022.
Market Data | Nov 27, 2023
Number of employees returning to the office varies significantly by city
While the return-to-the-office trend is felt across the country, the percentage of employees moving back to their offices varies significantly according to geography, according to Eptura’s Q3 Workplace Index.
Market Data | Nov 14, 2023
The average U.S. contractor has 8.4 months worth of construction work in the pipeline, as of September 2023
Associated Builders and Contractors reported that its Construction Backlog Indicator declined to 8.4 months in October from 9.0 months in September, according to an ABC member survey conducted from Oct. 19 to Nov. 2. The reading is down 0.4 months from October 2022. Backlog now stands at its lowest level since the first quarter of 2022.
Multifamily Housing | Nov 9, 2023
Multifamily project completions forecast to slow starting 2026
Yardi Matrix has released its Q4 2023 Multifamily Supply Forecast, emphasizing a short-term spike and plateau of new construction.