What Elements Are Behind the Increased Costs in Today's Construction Industry?

The construction industry faces many challenges making it hard to finish projects on time and within budget. Labor shortages and increased cost of materials contribute to the rising cost of construction.

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What Elements Are Behind the Increased Costs in Today's Construction Industry?
4 Min Read June 14th, 2023

Everyone's heard of the cost-of-living crisis and how it's driving prices up, but what's actually behind specific increases? One major area that's been affected by the constantly increasing prices is construction, and it's one of the driving forces behind other price rises. 

That's because, in the construction industry, the cost of projects has risen by 14.1% over the last year. This increase has led to delays, company closures, and increased prices for end users, including homeowners and tenants alike. As businesses face paying more in rent or for new premises, they pass these costs onto customers, which is fueling the rapid rise of the price of everything from food to luxuries. 

Here are some of the core reasons why costs are growing in the American construction industry in 2023 and why they will continue to rise for the foreseeable future. 

The War in Ukraine

It might be thousands of miles away from America, but the war in Ukraine is having a significant effect on the construction industry here. The price of materials has risen due to the war, as Ukraine and Russia are major producers of oil and other materials that can be used in the production of vital construction resources. Also, transportation from the region has been disrupted, which creates delays and leads to further price rises for future deliveries. 

Increased Material Costs

As materials from Eastern Europe are delayed and other countries are facing greater runs on their production, material costs are going up around the world. In the US, added pressures on suppliers, such as higher commercial real estate costs, increased wages, and more, mean that material costs are spiraling upwards. Almost every raw material in the construction market, from concrete and screed to wood and paint, thanks to inflation and rising costs throughout the corporate landscape.  

Ongoing Skills Shortages 

It's not just material costs that are rising: the cost of labor is also increasing, thanks in part to the ongoing skills shortages across the construction industry. With skills shortages now at around 546,000 workers, companies face paying inflation-busting wages if they want to hire and retain the best talent on the market. Staff are essential for the smooth running of any construction project, so without them, there are likely to be delays and issues. 


All these reasons and others are responsible, both directly and indirectly, for the price rises. Many of these cost rises and challenges, such as finding the right employees or awaiting delayed deliveries of essential materials, are combining to hold up the process of completing construction projects. Delays cost money, as each day a project is held up, managers will still need to pay most of their fixed costs and will be further from their deadline without advancing. As a result, all these combined issues cause further price increases for any project.  

How Construction Businesses Are Adapting 

The construction industry might be facing significant price rises, but that doesn't mean it's sitting back and taking them. While these challenges might seem insurmountable, and some might be, the market is still trying to adapt and manage rising costs where possible. 

Some of the strategies construction site managers are using include: 

  • Using cutting-edge construction cost management software Kahua to manage and optimize budgets
  • Embracing other forms of technology, such as 3D drawing tools and digital timecards, to streamline operations 
  • Making the most of modern tools, such as digital tape measures and electric drills, to save man-power and get basic tasks completed faster
  • Exploring alternative materials and solutions to deal with shortages and price rises
  • Working to upskill existing workers and give them the support they need to do their jobs effectively 
  • Providing a more supportive working environment to help retain talented staff 
  • Trying to manage downtime effectively to make the most of it

While these techniques aren't perfect and can't help overcome every challenge today's construction market faces, they are helping companies to do everything they can to complete projects as close to on time and on budget as possible. 

A Final Word 

With the uncertainty across the economic landscape set to continue for the foreseeable future, construction companies face even more delays, price rises, and other challenges as we look ahead. All of these issues put pressure on their finances and mean that many projects will cost more to complete. These price increases will be passed down to the end user, meaning that both rents and property prices will continue to go up in the commercial and residential sectors. 

For tenants, the Government has added another $700 million to the rent relief fund to help anyone who is struggling to pay, and it's constantly seeking ways to help both the construction industry and households to deal with the issues they face. While the future may seem bleak, there is help available, and things should start to even out over the next year as we see the industry start to catch up. 

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