Persistent Construction Material Price Increases in 2022: Impact and Future Trends

Chapter 5: Impact on Materials Costs and Construction Cost Trs in the U.S. for 2022

Construction material prices have soared since early 2021, signaling a continued increase into 2022.

Year-over-year growth in goods and services utilized by construction firms was above 15 since the beginning of 2021, with accelerating inflation observed throughout this period.

The Input Price Index IPI for new non-residential construction, which measures costs excluding labor and capital investment, rose by a staggering 42.5 from March 2020 to March 2022a significant rebound after experiencing a brief dip during the early stages of the pandemic. The Output Price Index OPI, reflecting the price charged by firms for completed projects, has seen similar sharp rises but lagged behind IPI by approximately six to nine months as construction companies gradually adapted to new conditions and passed on costs more fully.

Given that input prices are currently experiencing another surge in 2022, it is anticipated that output prices for construction services will follow suit and increase throughout the year.

Figure 35: Producer Price Index PPI: Input Costs to Construction

• Latest data as of March 2022.

• Source: Bureau of Labor Statistics CBRE Strategic Investment Consulting, April 2022.

Figure 36: IPI vs. OPI for New Nonresidential Construction

• Data latest as of March 2022; index benchmarked to 100 in December 2015.

• Source: Bureau of Labor Statistics CBRE Strategic Investment Consulting, April 2022.

Key Input Materials Experiencing Major Increases

Commodities like iron, steel and lumber have experienced substantial hikes, with the PPI for steel mill products and some plastic piping more than doubling since March 2020. Ready-mix concrete pricesrepresenting about 10 of the overall goods indexand non-metallic minerals, except lumber and wood, have shown less dramatic increases but are still significantly higher compared to their pre-pandemic levels.

Despite this, most construction materials have been subject to unusually high inflation since early 2021. Notably, lumber and softwood prices had steep hikes in 2020 due to an unprecedented surge in demand amidst pandemic-induced supply chn disruptions.

Iron and Steel Prices Easing

While iron and steel prices surged dramatically over the last two years, there was a notable softening by late 2021. Since peaking in November 2021, the PPI for iron and steel has dropped by 8 through March 2022.

Challenges Affecting Commodity Pricing

• Lumber and Wood: The robust growth of residential construction and DIY renovations during the pandemic placed pressure on lumber suppliers unable to rebuild sawmill capacity amid heightened demand. Coupled with import regulations, tariffs which are still in flux, transport challenges, and other factors, this has caused significant price fluctuations that will likely persist for some time.

• Iron and Steel: The easing of US tariffs on EU steel alleviate skyrocketing costs and demand pressures. However, ongoing considerations around transportation costs e.g., fuel and the status of tariff negotiations remn key drivers of iron and steel prices.

• Stnless Steel Russia-Ukrne Conflict: In contrast, materials like stnless steel might continue to face impacts from the conflict between Russia and Ukrne.

Forecasting Future Price Increases

In general, most construction material prices are expected to rise in the near future, although at a slower pace compared to recent peaks. Prices will not likely revert to pre-pandemic levels; rather, they dep on various factors including transportation costs for heavily imported goods like lumber and iron, as well as ongoing tariff negotiations and geopolitical events.

The unprecedented surge in construction material prices since early 2021 has underscored significant challenges for the industry. Although signs of easing are present, many sectors anticipate a continuation of elevated costs, requiring strategic planning and adaptation to mitigate financial impacts. The interplay between macroeconomic factors, global trade dynamics, and supply chn resilience will continue shaping this landscape in the coming months.

Further Resources:

• Download Chapter 6: Implications for Construction Costs

• Explore Chapter 4: Labor Market Trs

For comprehensive insights on real estate sectors and trs worldwide:

• Visit CBRE: Our Websitehttp:cbre.com

• Contact Us: Get in Touchhttp:contact-cbre.com

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