Cost of Construction in the U.S. to Increase by 0.75-1 percent

The cost of construction in the U.S. is expected to rise by 0.75-1 percent owing to increasing commodity prices trends including higher costs of raw materials, as well as rising labor costs. 

The Covid-19 pandemic has left a major void in the skilled labor market. Shortage of skilled labor has driven manufacturing costs up with labor costs estimated to increase by 3-5 years in the coming years. Disruption in supply chains for raw materials under the impact of the Covid-19 virus is another important reason driving costs upwards.

Commodity price analysis reveals how during the Covid-19 pandemic, contractors hiring 500 or more American employees pay Covid-19 sick benefits to state workers in the event of possible exposure. This rule came into force in January 2021 in California. The ongoing U.S. and China trade war led to the imposition of 25 percent tariffs on raw materials like asphalt, cement, and MDF imported from China. The demand from the public sector is expected to drive the demand for labor that is available now at a much higher price.

The increase in raw material prices has affected construction costs all across the U.S. The global commodity prices trends highlight how the cost of raw materials forms at least 30 percent of the amount spent on construction. Steel is one of the major raw materials used in construction, the increased prices of which have affected construction costs. An assessment by Beroe reveals how more demand from the construction sector – apart from petrochemical, energy, and power projects – in the second and third quarters of the year could prompt steel prices to a higher level in the long run. Statistics reflecting commodity prices underscore how an increase in them will have an increasing impact on the construction costs by 0.8-1 percent, especially, in the critical industrial sectors like refineries, power, pharma-manufacturing plants, etc.

The construction industry is optimistic about being able to perform to its pre-Covid levels. In the second half of 2021, price volatility and labor prices would contribute to fluctuations in overall construction costs as in the first half. The outlook toward long-term U.S. commodity prices is different as prices are expected to stabilize as supply slowly catches up with the demand. Though the impact of the virus has subsided to a great extent, fear of the third wave looming ahead continues to affect the prices of raw materials. 

Analysis show how an increase in commodity prices by 0.3 percent is expected in the long run, thus, forcing the construction costs to go up marginally. Labor prices are thus expected to increase by three percent in 2021 with more safety and worker protection measures in place. The raw materials that have had a maximum impact on construction costs include cement, 316 stainless steel, rebar, structural steel, crude oil, electricity, copper, and aluminum.

Key Findings:

• The spread of Covid-19 caused construction contractors to face monetary stress due to shrinking orders and tight working capital.

• Imports of construction goods from China are likely to be affected due to restricted supply resulting from the imposition of tariffs. The import of steel is likely to shift to Asia to meet increasing demand. However, potential supply chain bottlenecks of equipment and materials like structural steel and glass from Asia could be expected soon.

• Adopting software and technologies to aid in work from home and remote locations will help to recover from the time and labor lost due to the pandemic. There has been a substantial 25 percent rise in the adoption of project management software since the COVID-19 pandemic began.

Recommended Reads:

Stainless Steel Suppliers