The real estate industry has dealt a huge blow in the last couple of years with challenges related to high construction materials costs. New construction developers and other real estate stakeholders have lamented the ever-increasing prices of basic construction materials and commodities. The effect has seen many developers punched by the pressure hence drugging construction, while some are reaching the extent of stalling the developments.
The rising cost of construction materials is not a new problem to many since it has been in place for over a decade. Over the last couple of years, the global economy has experienced what can be termed as a never seen before flop in the economy. The tumbling economy has worsened in the real estate sectors, with developers finding it hard to push on while new construction buyers are perplexed with insane housing prices.
Now, the question bothering many is when the cost of building materials will begin to drop. Perhaps many asking that question are new-time home construction buyers and new developers seeking to set up development projects.
Why did construction materials cost rise in the first place?
The current inflation the whole world is experiencing is so tremendous and comes with a high level of devastating magnitudes. In Canada, an 8.1% inflation rate was recorded earlier this year, making it the worst in 39 years. Inflation is measured over time, being the price increase in commodities in a given economy.
The real estate industry also faces this same giant with no stone left untouched. Almost all parts of construction are affected. Ranging from the cost of building materials, machinery hiring rates, and other input expenses.
When the inflation is high, it means that you will have to incur an extra cost when looking to purchase construction materials. Materials used in construction include; Timber, steel, Cement and foundation stones, bricks, paint and coasting, ceiling, roofs, tiles, pebbles and Cement and extra accessories.
These commodities have risen in price compared to previous years. For instance, a simple tool such as a hammer cost CAD 10 two years ago. Currently, the same tool is retailing at CAD 13. The price difference doesn’t mean that perhaps the hammer has changed in quality. It is all because of inflation.
Shortage of available construction materials
This applies to any other sort of commodity leave alone the construction materials. Once there is a commodity shortage, like it or not, the price of the commodity still in stock will shoot up. The same is done to the construction materials. The current shortage in materials used for construction
is among the reasons Why we are still going to have high construction costs. Shortage of materials does not come out anywhere. There have to be issues at hand that causes the shortage to happen. Check them out below;
Current energy crisis
The globe is facing a new threat to its economy, and one key reason is the energy crisis. The fuel pricing is rising daily, putting extra pressure on manufacturers and becoming a major concern that needs extra attention.
Once the manufacturing market is faced with construction shortages, those planning on construction will have to prepare adequately. The fuel shortage means the manufacturing and processing sectors responsible for construction commodities will be disadvantaged.
Once the production of construction materials is paralyzed, then the current stock on the market drops. With demand increasing, the retailer now puts in an absurd amount of money for purchasing these products.
Post-Covid 19 pandemic effects
The Covid 19 pandemic was one of the most devastating pandemics in this generation. The globe went dark, with core economic activities stalling while some died for good. The effects of the pandemic have never been easy on any country.
Here in Canada, just like most countries, the economy also got punctured. The real estate sector met several blows, with the halting of development projects being evidence. The poor supply chain also derailed most development projects, as well as the shortage of labor.
Once the economic status drops, rising back to its original place takes time. Currently, the weak economy is picking up well, but the commodities of key construction materials are still on the rise. This trend has been projected to also proceed into features. That means real estate investors and buyers must brace for more impact.
Will the cost of construction materials go down?
This question has been asked repeatedly, with many holding their hopes high that things will get better. Unfortunately, that is very far from reality. The truth is, we should expect even further increase in the costs of construction materials in the coming years.
The world economy is struggling with the record high inflation rates visible in many countries. The production price has more than doubled with the pressure on consumers and buyers. The high inflation also means that the manufacturers face high manufacturing costs. They also transfer the same pressure to the buyers.
Besides, the world’s economy is not fully free from the Covid pandemic. After the severe Covid pandemic, the dwindling economy still has a long way to go. Experts predict that perhaps after five years is when the economy can go back to where it belonged.
That reasoning is based on the current issues such as climate change that have led to low energy production leading fuel crisis. On top of that, the current war in Ukraine has also contributed a lot to the stagnation of the supply of core building materials.
What can be done to deal with the problem
Well, solving the entire problem is almost impossible. However, some ways to reduce the pressure from rising construction materials costs. The only remaining remedy is for the government to come to aid. That is through the provision of amenities such as incentives and subsidies.
These amenities will help unburden the extra pressure on developers and home buyers looking to invest in real estate projects. Reducing the VART tax on construction would probably be the best way to cut down on the high cost of such commodities.
The answer to when construction material costs might drop is still unknown. That is because it is almost impossible to predict any possible future outcome on the economic status. Therefore, we must brace for even further escalation of the problem in the coming year. Inflation is rising so fast, with global issues always on the rise.
Sitting and waiting for the right and perfect investment time won’t be the best idea. It IS now up to investors and new construction homes buyer to take the bull by the horn and proceed to invest.