Jul 15, 2022 - Economy

Rising construction costs are squeezing builders

Data: Analysis of PPI data via Associated Builders and Contractors; Chart: Axios Visuals

It's been a wild two years in the building business. Construction input costs — think steel, lumber, gas, asphalt — are 46% higher than they were pre-COVID, according to an analysis of the Producer Price Index from the Associated Builders and Contractors.

Why it matters: For most of this time, residential builders could pass on these growing costs to homebuyers, as demand was booming. Now, the music has stopped — rising rates have cooled demand for housing in a big way.

  • For construction projects still underway — where the input prices were very high — this is a problem.
  • Industry observers are watching to see how this affects employment in the industry. "There are a lot of 'what ifs' at this point," says Ali Wolf, chief economist at Zonda, a homebuilding tech company.

The bottom line: Builders aren't "going to necessarily be able to charge the prices they expected," said Anirban Basu, chief economist at ABC. "It's quite a squeeze."

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