If you’re planning a home renovation or building project, you’ve likely noticed that prices for both materials and contractors have been steadily climbing. To understand why this is happening, let’s take a look back at the economic shifts of the past decade and the current state of the construction industry.

The Post-2008 Landscape: A Period of Price Suppression

The housing market crash in the fall of 2008 had a profound impact on the construction industry. Suddenly, a booming market came to a screeching halt, leaving countless individuals and construction companies with a severe lack of work. Homeowners, facing diminished equity and limited access to funding, were forced to put building and remodeling plans on hold. This resulted in widespread layoffs of skilled tradespeople and a significant number of builder bankruptcies. For the contractors who remained, competition for the scarce available projects was fierce, leading some companies to lower their prices in an effort to stimulate business and stay afloat. Profit margins were often razor-thin during this period.

The Current Upswing: Increased Demand and Labor Shortages

Fast forward to the present, and we’re witnessing a significant upswing in construction activity. However, the landscape of the construction trades has changed. Years of limited work and subsequent career shifts have resulted in fewer people in the skilled trades. This shrinking workforce is now facing a surge in demand for their services, creating a highly competitive environment for available workers. As demand outstrips supply, wages are naturally driven upward, and ultimately, these increased labor costs must be factored into project prices.

The Rising Cost of Materials: A Broad Impact

Labor isn’t the only factor contributing to higher contractor prices. The cost of construction materials has also seen substantial increases in recent years. For example, drywall prices have reportedly jumped by as much as 60% in some areas. Material costs are up across the board: lumber, cabinets, paint, windows. It’s simple supply and demand as construction increases.

Contractors Adjusting Margins for Sustainability and Growth

For an extended period following the 2008 crash, many contractors operated on very tight profit margins simply to secure work. Now, with increased demand, many are strategically increasing their profit margins to ensure the long-term sustainability and growth of their businesses. These higher margins allow them to invest in hiring more skilled workers, expand their operations, and provide better service to their clients.

The Time to Act: Consider Your Project Sooner Rather Than Later

Given the current trends of rising labor costs and material prices, coupled with contractors adjusting their profit margins, the overall cost of building or remodeling is likely to continue its upward trajectory. Therefore, if you are considering a building or remodeling project for your home, it would be wise to act sooner rather than later before the next round of price increases potentially impacts your budget.