May 19, 2022
Many people are wondering, will construction costs go down in 2022? After all, we’ve seen record spikes in the price of building materials like lumber and shortages of many other products due to supply chain problems.Borders are opening a little more, but the answer to the question “will construction costs go down in 2022” is probably not, and here’s why.
One of the biggest reasons the answer to the question of will construction costs go down in 2022 is no is that fuel prices have skyrocketed, and with the ongoing war in Ukraine, there’s no end in sight to that increase. Increased fuel costs mean every kind of freight and transport costs more, and those costs always trickle down to consumers and contractors.Even if the war in Ukraine ends soon, it will take some time for the price of fuel to rebound, and of course, any products already in stock would still be priced at the higher rate.
Most parts of the world have been slowly emerging from the extreme restrictions of the pandemic, with varying degrees of success. However, we are still seeing the impact of Covid on construction material supply. In some cases, like China, it’s because of government-imposed shutdowns, but Covid is also keeping more people out of work due to illness, which means production rates are affected. Since many distributors are still trying to build up stock levels from earlier shortages, there still isn’t enough of everything to cope with demand.There are even shortages of things like silicon chips, which probably won’t affect you until you need to buy a new work vehicle. But when you do, you can expect to pay a premium – even if you buy a used vehicle.
The pandemic had a profound effect on the labor force around the world.In some cases, it was because of early pandemic-related deaths, but it has been exacerbated by many people choosing to retire earlier than they had initially planned to. Many people who were affected by early shutdowns and cutbacks also retrained and started new careers or even started their own businesses. This is putting enormous hiring pressure on construction companies of all sizes across the spectrum. Recruitment advertising costs are up and because competition for good candidates is fierce, and employers are also finding that they need to offer higher compensation packages across the board.
During the early part of the pandemic, many governments worldwide froze interest rates or even lowered them. They also increased social spending and economic stimulation programs. However, since the early part of 2022, we’ve seen governments change course on their economic policies. Interest rates have started to climb again, and combined with other financial pressures; this has only increased the inflation rate. Even if you aren’t hugely affected by material and freight cost increases, you will probably find that your overhead costs increase. Everything from office supplies to utilities will cost more, and that all increases the cost to customers in the construction industry.
Interestingly, another factor driving the increase in construction prices has been increased demand. In many places, this has meant increased demand for new builds, and in others, it’s spurred a spike in demand for renovations and additions. People have changed the way they live and spend more time at home. While they’re home, they’re discovering that there are problems that they need to fix. So, they’ve been spending a lot more on home improvements.At the same time, more people are taking on DIY projects too. This adds another dimension of the demand for building materials, which puts further pressure on the still-recovering supply chain. Of course, construction prices are also closely tied to supply and demand, so this is another reason why the answer to the question of will construction costs come down in 2022 is no, and it’s not looking likely for the early part of 2023 either.
Increased construction costs are generally good for contractors and construction companies. As long as you can stay on top of increases in your quoting and estimating, you could make more money with the same markup. But with price volatility across the board, this is harder than usual.There are several things you can do to help ensure that you include cost increases in your quotes to customers: 1. Shorten your quote validity period – we’d all like to hold quotes for 30 days, but when your costs are often changing (sometimes every week), that’s just not feasible, so adjust your validity period to ten days or even one week 2. Try to increase stock holding of commonly used products – if your order book is full, you’re going to need them, and if you can buy in volume, you will probably get a bulk discount and beat the next price increase 3. Use construction estimating software that uses live, real-time material pricing, so you’re always using the latest product costs 4. Improve productivity as much as possible – if labor costs go up, you can balance them by getting things done faster, so consider investing in tools and technology that allow you to do that 5. Tighten up your project management – make sure you’re always on top of every job and that you send out change orders and other project documentation on time 6. Plan job start dates carefully – starting a job just before the start of a new month means even if you have 30-day credit for purchasing materials, you’ll still be paying for them before you can bill your customer, so try to start big jobs right after the beginning of the month 7. Save as much as you can – the better your financial situation, the more options you will have to offset increased construction costs 8. Stop competing on price – there will always be companies that cut prices to the bone to get work, but they usually don’t last very long – so focus on offering superior service, and make sure that you present your company as the professionals you are every step of the way The economy is a wave. When it goes up, it will always come back down again. When it comes to construction costs, the key for everyone right now is to float on top of the wave until things change again. Because they will, and we’ll see the end of all this at some point.
CostCertified can’t do anything about the economic factors that are impacting construction costs or change the answer to the question, “will construction costs come down in 2022.” But we can and do make it easier for construction companies to succeed, even when inflation is high. Our construction estimating software uses sophisticated web crawlers to always use the most current material prices for your estimates. The unit rate and assembly-based estimating process make it easy to make changes on the fly, and once it’s set up, changing labor rates and other nonmaterial costs is simple and fast. The CostCertified system also cuts the time your estimators and salespeople take to produce detailed quotes,which means you can take advantage of increased construction service demand while keeping your sales process costs low. If you’re ready to get the edge you need to stay ahead of the economic wave, reach out to the team. We’re always happy to show you how CostCertified can change the way you quote, manage projects, and run your construction business.