The cost of materials limiting the growth of residential construction

According to an analysis by the Associated General Contractors of America (AGC), unprecedented price increases for a wide range of goods and services used in construction pushed up contractors’ costs by 26.3% year-on-year from June 2020 to June 2021.

And while the job market posted strong gains in June, rising materials prices held back the construction sector, making it difficult for many construction companies to take advantage of the reopening economy and undermining the ability to add new, well-paying jobs.

“Entrepreneurs were hit last year by cost increases, supply shortages and transportation bottlenecks,” said Ken Simonson, AGC chief economist. “Meanwhile, declining demand for many types of projects meant that contractors couldn’t raise bid prices enough to recoup these expenses. “

Further influencing the housing industry’s need to increase inventory and build new homes, there have been double-digit percentage increases in the selling prices of materials used in each type of construction. The lumber and plywood producer price index doubled from June 2020 to last month, although lumber prices have declined since the index was calculated. The steel mill products index rose 87.5%, while the copper and brass factory forms index rose 61.5%, the aluminum factory forms index increased by 61.5%. rose 33.2% and the index of plastic construction products rose 21.8%. The index for gypsum products, such as wall panels, climbed 18%. The index for prepared asphalt and tar roofing and siding products rose 12.1%, while the insulation materials index rose 10.1%.

The producer price index for new non-residential construction – a measure of what contractors say they would charge to construct five types of non-residential buildings – rose only 3.4% in the past 12 last months. This is a small fraction of the 26.3% increase in prices that producers and service providers such as distributors and transportation companies charged for construction inputs, Simonson noted.

The Bureau of Labor Statistics (BLS) reported that the U.S. economy created 850,000 jobs in the month of June, while the Department of Labor reported that for the week ending June 26, the anticipated figure for claims for Seasonally adjusted initial unemployment was 364,000, a decrease of 51,000 from the revised level of the previous week, marking the lowest level for initial claims since March 14, 2020, when it was 256,000.

“Construction companies will find it difficult to recruit new staff as they increasingly pay for most of the products they need to build projects,” said Stephen E. Sandherr, CEO of AGC. “Washington officials can take action that could have an almost immediate impact on material prices, but they must act.”

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