Surging Input Costs Remain Top Challenge For Construction Industry

By Nathalie Voit

Building material prices remain the top challenge for workers in the construction industry, the National Association of Home Builders (NAHB) said in a blog post on Feb. 14.

Costs of building materials were a primary issue for 96% of builders surveyed by the NAHB in 2021, followed by the availability and/or time it takes to obtain those building materials (91%). Building material prices are expected to remain a top issue for 90% of respondents heading into 2022, according to the survey.

The portion of builders listing construction material prices as a significant problem has steadily increased over the past decade. In 2011, just one in three respondents (33%) named material costs as a significant problem. That number more than doubled by 2017.

Surging input costs have been most evident in the market for softwood lumber, the primary raw material in the construction of new housing developments.

According to the NAHB, lumber prices began their ascent shortly after the COVID-19 pandemic, climbing approximately 175% between April and September 2020 from their pre-2020 average of $325 per thousand board feet (mbf).

In May 2021, lumber futures prices reached an all-time high of $1,500/mbf, nearly three times the pre-pandemic record. Although prices have fallen from that peak since then, framing lumber prices are still about three times their average pre-pandemic price, the NAHB said.

Even when adjusted for inflation, average real lumber prices in 2021 and 2022 were still well above their historical averages, surging by 37% over those 24 months, according to NAHB data.

Soaring lumber prices have added over $18,600 to the cost of a new home and $7,300 to a new multifamily home, the NAHB said last month.

“With a historically low level of overall housing inventory and solid demand due to low mortgage interest rates and favorable demographics, new construction has been unable to add additional needed supply to the market, resulting in unsustainable gains for home prices,” wrote the director of tax and trade analysis at NAHB, David Logan.

Essentially, lumber mill production can’t keep up with housing demand. Although recovering, sawmills have been plagued by labor shortages since the onset of the pandemic, according to the NAHB. The imbalance between housing starts and sawmill output has led to the sustained surge in home prices.