Construction Costs Hit Highest Spike in 50 Years

The costs of construction are the highest seen in 50 years with contractors and home builders feeling the effects.

It's something to keep in mind if you are building a home – or really anything – this year.

Recent data from the U.S. Census Bureau shows construction costs went up by 17.5% year-over-year from 2020 to 2021, the largest spike in this data from year to year since 1970.

2021’s costs were also more than 23% higher than pre-pandemic 2019.

Companies are blaming this on supply chain issues, inflation, labor shortages and other issues that have dominated headlines in the past year.

The price of softwood lumber alone has jumped about 85% in just the past three months after the U.S. doubled tariffs on Canadian lumber and wildfires disrupted lumber production.

Other materials like gypsum and steel are also higher.

These costs are ultimately passed down to potential homeowners building a home or other entities building or expanding any type of structure. Continued demand for homes and an influx of new residents to certain states, like Texas, have made way for sharp price increases as well.

According to a new report from Realtor.com, the median home price in DFW is now $400,000, up 14% from this time last year.

Homebuilder confidence is also dropping for the first time in four months, according to the National Association of Home Builders, despite strong sentiment scores at the end of 2021.

“Higher material costs and lack of availability are adding weeks to typical single-family construction times,” said NAHB Chairman Chuck Fowke said in a CNBC report. “NAHB analysis indicates the aggregate cost of residential construction materials has increased almost 19% since December 2020.”

The situation has also led to some companies stockpiling materials to protect themselves from future increases. There are also reports that some homes are being sold while still missing elements or that many are cutting costs on features.

That's why industry experts are warning anyone who is building something right now to do what they can to protect themselves from issues with their contractors or other parties.

"I would advise them to be able to track, track, track. Organize, archive, screenshot, and keep everything in one central location. Make sure that they are preparing to defend the project because the project is one thing but it's the lifecycle,” said CEO of MySmartPlans Shelley Armato, who has managed over $12 billion in construction projects.

MySmartPlans is a technology service that offers all parties involved in a project the chance to keep accountability and transparency in construction projects. It acts as a third-party custodian of all project data and documents including plans, specs, reviews, emails, photos, reports, and other types of files – which has allowed for businesses, contractors and homebuilders to avoid problems in this volatile era of building.

“A homebuyer that's building a new house, and they go to contract for say, $450,000. And then there's a provision in the contract that might be in small letters that they don't even really realize is there. So it's [important to be] much more studious in our purchasing across all boards,” Armato said.

She said another issue driving up the cost of projects is litigation and other legal roadblocks that arise from delays in materials and cost-cutting measures that have sprung up due to the pandemic.

“Because now, the contractor can point to the supply chain. As a homeowner, say I ordered this amazing Joanna Gaines kitchen sink. And the contractor says, ‘you know, that's back-ordered for 12 weeks, but I have this other one that we can use.’ And the other one, they might have bought on flip bids for $72 and they're going to sell it to you for $42,000,” Armato gave as an example.

Despite the rising costs and other issues, new build houses for sale at all stages have been on a steep rise, up 58% at the end of 2021 from a year before.

So construction work hasn't stopped.

Experts say that's because of the huge demand for housing and the lack of inventory on existing homes.

Data shows most North Texas counties continue to see the lowest inventory of homes for sale in three decades, with the biggest drops in Dallas County.