The impact of the rising cost of materials and labor in the construction industry

on May 24, 2023
Updated: May 25, 2023
  • Rising costs of building material and labor has greatly impacted the construction industry.
  • Factors such as inflation and environmental conditions affect contractors, building owners and architects.
  • But one can navigate these via effective strategies for controlling construction expenditures and labor costs.

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The rising costs of building material is having a major impact on the construction industry. According to a Minneapolis Fed survey, over 65% of respondents said it’s hurting demand, and 70% said profits are taking a hit.

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The construction industry and homebuyers both feel the effects of the increasing building material costs and construction salaries. The outlook on the industry is that this is likely to see  people reconsider plans around constructing a home or business, or renovation.

Rising prices also mean fewer sales, with this evident in the pricing of key materials. Notably, materials like copper are vital for the construction industry but are also a key component in electric vehicle manufacturing. As previously highlighted by Invezz, there’s “just not enough copper deposits” to satisfy the growing demand which justifies upward pricing pressure both in the near-term and long-term.

What does all this mean for the construction sector and how is this impacting society as a whole?

Causes of increasing construction costs 

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The rise in construction costs has undoubtedly left many within the sector feeling the pinch, particularly with labor and material expenses making things difficult. But what’s causing this issue? There are three major factors at play here:

  • Inflation and rising material prices – The cost of materials rises in tandem with demand, making it more challenging for construction companies to buy what they require.
  • Rising labor expenses – Contractors need help finding affordable labor as more and more workers want better pay and working conditions. A shortage of highly skilled people raises the labor cost even more.
  • Environmental conditions – Construction costs may increase due to the increasingly strict criteria that governments and regulatory bodies place on environmentally friendly building materials. On a positive note, it protects our environment.

It is challenging for developers to complete their projects because of the enormous rise in building expenses brought on by these variables. But despite these difficulties, the construction sector is tenacious and persistent in its search for cost-cutting measures that maintain quality.

Examining impact on industry players 

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With the rising cost of materials and labor, the major players in the industry are deeply impacted. They’re the contractors, building owners, architects & designers, suppliers, and subcontractors.  

  • Contractors – They feel the strain of escalating construction costs. They must work harder to satisfy their client’s needs while retaining their profit margins. It can be challenging but presents an opportunity for creativity and novel construction techniques.
  • Building owners – Higher expenses could lead to adjusting the budget and pushing back building completion dates. Yet they still look for alternative financing sources or collaborate with contractors to learn money-saving strategies to finish their projects.
  • Architects & Designers – They adapt their designs to use less expensive materials and techniques without compromising aesthetics or functionality. It’s a fine line to walk but also a chance to be inventive and develop new designs and construction methods.
  • Suppliers & Subcontractors – They must pay more for labor and materials, which could reduce their income. However, this is a chance for them to shine by giving their customers more value and superior service to stand out.  

The construction business is at an exciting phase because even though the major players in the industry feel the effects of rising costs, they will continue to create fantastic projects and new solutions that will benefit everyone.

Impact on consumers and businesses

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Rising building prices can affect firms’ bottom lines. They may need to postpone these plans or reduce the project’s scope if they intend to increase their physical footprint or refurbish their current location. Although this can be upsetting, it’s crucial to remember that these difficulties are temporary, and we will discover new methods to adapt.

These expenses are less impactful for consumers. They can postpone remodeling projects or choose cheaper materials or finishes as an alternative. Although this can be discouraging, many inexpensive options, like premium yet affordable kitchen cabinets, exist to improve homes. 

It’s also helpful to speak with a contractor who can help examine the options and discover a solution that fits within your budget.

Despite these difficulties, remember that the construction sector is indispensable to our economy and daily lives. We can keep discovering solutions that help both customers and businesses so the building industry will advance.

Best ways to manage increasing construction costs

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There are several tactics that people in the construction business can use to manage rising building expenses. These are effective strategies for controlling these expenditures and advancing projects in more detail.

  1. Minimize risk by hedging against inflation and interest rates. It means securing costs for supplies and labor advances and using financial tools like futures contracts to hedge against unforeseen price rises
  2. Engaging in value engineering involves analyzing the project thoroughly to reduce costs without compromising quality. It may include using cheaper materials, removing unnecessary features, and expediting construction.
  3. Precise scheduling and excellent project management strategies can help contain costs by keeping construction projects on track. Contractors can use these strategies to save money on labor and materials while still completing tasks on time and under budget.
  4. Another way to cut costs in the construction industry is to leverage last-mile logistics. By increasing the delivery of supplies and tools to construction sites, contractors may reduce the likelihood of delays and minimize transportation costs.
  5. Contractors and builders can also gain a competitive edge by using technology for automation and improved forecasting. With advanced software tools and data analytics, they can analyze real estate market trends and make better decisions for project planning and execution. Moreover, manufacturers themselves can help to keep inventory carefully controlled and economically optimized by using building materials manufacturing software to ensure they can deliver the very best prices to their customer base.

Controlling rising building costs demands a complex strategy considering various elements. By incorporating these tactics, we can continue to create fantastic projects that benefit everyone while keeping expenses in check.


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The construction sector’s growing labor and material prices are serious issues. Everyone involved could suffer, from contractors and builders to customers and businesses.

However, there are techniques to regulate these costs and mitigate their negative impacts. The construction industry may remain competitive and advance projects by utilizing value engineering, implementing effective project management practices, lowering shipping costs, and embracing technology.

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