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Ongoing Construction Materials Price Increases – Part 1

On a hike out at beautiful Cypress Mountain this past weekend with some dear friends, one of them asked me about the reason(s) why we have been seeing the kind of price increases in construction materials in the local market. They were particularly concerned because they had just bought a piece of land out in Squamish and wondering how this would affect cost of construction and completion schedule.

 

It occurred then to me that many others like them did not exactly know what was fueling such rapid price increases even though they were directly affected due to home renovations and home construction projects they were about to undertake.

 

As we hiked on, I proceeded to explain that, in short, the price increases were mostly due to the COVID-19 pandemic. Of course, this short answer was not enough, and they asked me to further elaborate, and I decided to post the discussion on my website blog page here for the benefit of visitors to my website.

 

So here goes…

 

The recent rapid increases in construction materials is attributed to a combination of factors including, but not limited to, the severe stifling of supply lines due to COVID-19 and the boom in construction projects. But how can this be you may ask. Surely a lack of supply would equate to a cooling in construction activities. Not necessarily in this case. You see, at the start and height of the pandemic many construction materials production companies, like so many other unrelated industries, had to either scale down operations due to reduced short-term demand and/or lay off production staff due to uncertainty. Many are still operating under reduced staffing conditions. At the same time, many other industries continued to operate but had shifted to the work-from-home policy for employees.

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For many employees working from home and having disposable cash but not being able to spend on traveling, vacationing, shopping, wining and dining, the only other feel-good option for spending money was doing home renovations which created the demand and DIY construction boom.

 

This demand and DIY construction boom rapidly ate into supplies and reserves that had been produced prior to the pandemic. In addition, the housing market in Canada and the US rebounded faster than expected after it cooled of at the start of the pandemic due to low interest rates. Production facilities on the other hand, however, could not restaff and source out raw materials fast enough to restock and meet demand.

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Demand for construction commodities has been further exacerbated by the government infrastructure stimulus spending as an economic recovery plan. Which brings us to the principle of demand and supply which dictates that if demand out-weighs supply, and in this case severely and increasingly out-weighs supply, we see a rapid and abnormal increase in supply price.

 

A variety of other factors have also further influenced the abnormal price increase in wood and steel products but this will be discussed in my next blog – Ongoing Construction Materials Prince Increases  – Part 2

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