Overview of inflation effects in construction sector of South Carolina in fall of 2023
Quick Facts: Inflation and its Role in Construction Today for South Carolina
Inflation affects all industries all over the world and unfortunately construction is no anomaly. In fact, almost every aspect of construction is affected by the pesky economic trend whether it be the increase in cost of labor, the cost of materials or the cost of insurance for the buildings or houses built.
Specifically, the industry has been especially hurt by lumber and steel prices increasing due to supply chain disruption during COVID-19. Construction companies had to watch as materials they worked with for years suddenly became unaffordable.
To put it into data, the annual construction inflation came in at 19.6% in just 2021, when it was only 4.4% the year before, according to the Construction Financial Management Association.
Let’s dive into the crux of what this percentage consists of:
Increased Material Costs in South Carolina: As mentioned above, inflation makes construction materials such as steel, cement, lumber, and energy go high and this increases construction expenses. When projects become more expensive for builders, customers end up having to pay even more for what they want done. Renovations, construction needs— they all become harder to budget for.
Labor Costs in South Carolina: It’s no secret that as the cost of living rises, construction workers will ask for— and certainly deserve— higher wages to maintain their standard of living. Contractors may start to find it more challenging to attract and retain skilled labor. This, in turn, leads to potential delays in work, which customers who enjoy fast turn-around times must prepare for.
Interest Rates in South Carolina: Inflation can lead to higher interest rates set by central banks to control it. When interest rates rise, borrowing becomes more expensive for construction companies. This can affect the financing of projects and increase the overall cost of construction.
Project Delays in South Carolina: Inflation also causes the disruption in the supply chain for construction materials. Delays in the delivery of critical materials can cause project delays and increase costs due to extended construction timelines.
Reduced Purchasing Power in South Carolina: Construction companies may find that their purchasing power diminishes during periods of high inflation. They may have to spend more on the same materials and labor, leaving less capital for investment or expansion.
Contractual Issues in South Carolina: Inflation can create disputes in construction contracts. Fixed-price contracts may become less favorable for contractors if their costs increase significantly due to inflation. This can lead to conflicts over contract terms and potential litigation. Customers also tend to feel frustrated when agreed upon costs at the start of the project go up later in the process, causing delays in discussions.
Impact on Housing Market in South Carolina: Inflation can drive up the cost of new homes and apartment buildings— and for certain suburbs or sections of cities, it can drive out potential home-owners or tenants that in the past could afford the area, potentially reducing demand for new construction.
Infrastructure Projects in South Carolina: Governments often engage in infrastructure projects to stimulate economic growth during periods of inflation. While this can create opportunities for construction companies, it can also lead to increased competition for resources and labor.
To mitigate the impact of inflation, construction companies often employ strategies such as cost forecasting, renegotiating contracts, exploring alternative materials, and closely monitoring supply chains. They may also try to pass some of the increased costs onto clients or adjust project timelines to account for potential delays.
Ultimately, inflation affects almost all aspects of construction— but the question is, how do we move forward? This is where BuildMasters comes in, with over 40 years of combined experience. We’ve seen it before and we’ll see it again— our team is ready to optimize all opportunities, discuss with clients expectations and keep their vision in mind every step of the way. To get your project started today – contact us for a free consultation call!