The Effects Of Inflation On The Building Industry

Every Canadian is currently feeling the effects of inflation. Whether it is increased fuel costs, increased food bills, or higher rent, inflation is an economic hazard felt by all. However, the effects of inflation are slightly more complex when it comes to new home construction. 

 

Inflation is felt the most in construction projects regarding non-labour inputs, such as materials, vehicles, and equipment. Building material costs can range from 35% to 60% of a budget, and changes in these costs can significantly deviate over the course of construction (Musarat et al., 2020). Therefore, inflation can easily cause overrun costs over the course of construction. For instance, lumber costs rose an average of 29.4% between December 2021 and January 2022. This cost increase resulted in new homes, on average, spending an additional $45,067.03 on lumber in 2021 compared to 2020 (Wong, 2022). Similar cost increases can be seen in the purchase of equipment, tools, and fuel, overall contributing to heightened expenditure during a new home build. 

 

Labour inputs into construction have gone up, albeit not quite as drastically. While no firm data exists yet, early projections of construction labour cost increase since 2020 place it between 6-25% (Musarat et al., 2020). These cost increases, on average, make a new home build 11% more expensive compared to 2021. Still, fluctuations in material choice or labour intensiveness can quickly increase it beyond this (Chiwuzie & Dabara, 2021). 

 

While this may indicate that the construction of a new home is becoming extremely expensive, several factors can help keep the cost of construction lower and prevent cost overruns. 

 

Firstly, the timing of purchasing materials is critical. In both 2021 and 2022, we saw significant decreases in the price of lumber in May (Song, 2022). Similar reductions were observed in other material types at varying points throughout the year. This means that the timing of selections can have just as significant an effect on a project’s budget as the selection itself. 

 

Secondly, alternative material types or building practices can help to save money, such as insulated concrete form usage. Consulting with experts on different building practices and materials is critical in new home construction (Porado, 2022).

 

Lastly, organization throughout the course of construction can aid in avoiding erroneous costs. It can also help to lock in pricing on selections, avoiding cost fluctuations later (Porado, 2022). 

 

Barnett Construction Ltd. is happy to perform all three recommendations as a part of our services. Inflation does not have to get in the way of your dream home. Call today. 

 

Works Cited:

 

Chiwuzie, A., & Dabara, D. I. (2021, March 12). Housing construction costs and house rents fluctuations in an emerging property market: The case of osogbo, nigeria. Property Management. Retrieved June 2, 2022, from https://www.emerald.com/insight/content/doi/10.1108/PM-06-2020-0041/full/html?casa_token=1sxhaepi9-sAAAAA%3AfoaP0P-WW2h8cNi-jq9qkSoyuobh8m5LSbhLNnMEdlKiVQnNImRJbiDjkSZwJG0MAREWS1IxOUI129Ua_8ue61-3V4W6xybrWLRyhExipsGokT_kJ1BmEA

 

Musarat, M. A., Alaloul, W. S., & Liew, M. S. (2020, June 15). Impact of inflation rate on Construction Projects Budget: A Review. Ain Shams Engineering Journal. Retrieved June 2, 2022, from https://reader.elsevier.com/reader/sd/pii/S2090447920300939?token=37C9BB7BBB6A82012477A807083C92D3487439FD0EB944EC8C13B8E18A4019D1B532CA8BC999D8732133D5C9E302E7F8&originRegion=us-east-1&originCreation=20220602173952

 

Porado, P. (2022, May 16). Rising lumber, materials costs lead claims professionals to tweak their approach. Canadian Underwriter. Retrieved June 2, 2022, from https://www.canadianunderwriter.ca/claims/rising-lumber-materials-costs-lead-claims-professionals-to-tweak-their-approach-1004221332/

 

Song, Z. (2022, April 12). Lumber prices plummet as inflation kills Home Reno Projects. Vancouver Sun. Retrieved June 2, 2022, from https://vancouversun.com/business/lumber-prices-plummet-as-inflation-kills-home-reno-projects

 

Wong, D. (2022, January 6). The Bank of Canada used lumber to “prove” transitory inflation, then prices doubled. Better Dwelling. Retrieved June 2, 2022, from https://betterdwelling.com/the-bank-of-canada-used-lumber-to-prove-transitory-inflation-then-prices-doubled/ 

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