Contractors and Owners have had an uphill battle dealing with material price escalations throughout the course of the pandemic, and many have felt squeezed from pre-pandemic contracts that lacked flexibility regarding materials shortages and price increases. Given the volatility of material costs, contractors and Owners have been faced with decisions fraught with risk and uncertainty. As an example, many contractors and Owners have had to make the difficult financial decision of whether to proceed with projects or wait until there is more stability in the market regarding material costs. Regarding the latter option, the question is when will that stability arrive, and in the meantime, whether the contractor and/or Owner is in breach of their construction contract for not performing due to increased material costs.
The rising cost of building materials is also affecting housing affordability, as the cost and limited supplies of softwood lumber, steel, aluminum and other materials and equipment have driven up housing costs. The rising material costs have been aggravated by the uncertainty of when supplies will be available to complete a home and whether the home will be appraised at the correct price to reflect the rising costs.
Some impacts of rising material costs have included: (1) A downturn in new home starts, as builders struggle to begin projects with uncertain time frames and costs; (2) Construction delays, as the supply of materials remains unpredictable; (3) Home owners walking away from projects because of escalating material costs, and (4) Appraisals not reflecting the true value of the home, because costs are rising too rapidly and builders are having to compensate on the frontend of construction by decreasing amenities available in the home.
Only time will tell if 2022 will be the year that material costs once again become more predictable and stable.
