The global challenge from the rising cost of construction materials

The cost of construction materials has been on a steady rise over the last five years, creating a significant challenge for the construction industry worldwide. According to the Associated Builders and Contractors' analysis of the U.S. Bureau of Labor Statistics’ Producer Price Index data, construction input prices increased by 1.4% in January 2025 compared to the previous month, culminating in a 40.5% rise since February 2020. This trend is not confined to the United States, with global, construction costs anticipated to rise by approximately 3.4% in 2025, writes John Ridgeway.

According to the Department for Business and Trade, the price of building materials in the UK has also increased by 35% since November 2020. This increase has been seen across all types of materials, including concrete, steel, timber and plastics.

In the United States, the Producer Price Index for construction materials has increased by 28% over the past five years. This increase has been driven by strong demand for housing and infrastructure projects.

In China, the price of steel has increased by 40% over the past five years. This increase has been driven by rising demand from the country's rapidly growing construction industry.

Examples of the impact of rising material costs can be seen in projects around the world. In the UK, the construction of the HS2 high-speed rail line has been delayed and is now expected to cost an additional £10 billion due to rising material costs. In the United States, the cost of building a new home has increased by an average of $20,000 over the past five years. In China, many developers are struggling to complete projects due to rising material costs

Several key factors are contributing to the rising costs, most notably, supply chain disruptions such as logistical bottlenecks and transportation delays, which have led to material shortages and increased costs.

The construction industry has also faced a shortage of skilled labour, and the situation has worsened post-pandemic as many workers left the industry during the economic downturn. This shortage has driven up wages, adding another layer of cost to construction projects.

In addition, global economic instability, influenced by geopolitical tensions and policy changes, has led to cautious investment and spending, further complicating cost management in construction projects.

The impact by sector

The repercussions of rising material costs have varied across different construction sectors. The housing sector has been notably affected, with increased costs for essential materials like timber and steel leading to higher home prices. This trend has made housing less affordable for many potential buyers.

Non-residential projects have also felt the strain, particularly those requiring large quantities of steel and concrete. The cumulative effect of rising material costs has led to project delays and budget overruns.

In addition, large-scale infrastructure developments are experiencing increased financial pressures due to the soaring costs of materials like steel and asphalt. These escalations can lead to postponed projects or the need for additional funding.

As already mentioned, the impact of rising construction costs is being felt worldwide, with several regional differences. In the United States, policy changes and economic factors have led to increased material costs, affecting project viability and timelines.

European countries are faced with high energy prices and labour shortages, contributing to increased construction costs. For example, Germany has ruled out a return to nuclear power, focusing instead on renewable energy sources, which may influence future construction trends. Asian markets are also experiencing varied impacts, with some regions facing material shortages and others benefiting from localised production capabilities.

Future outlook

Looking ahead, the construction industry is expected to continue to see rising material costs. The National Association of Home Builders suggests that the industry will need to adapt to this new reality, potentially involving rethinking project designs to be more cost-effective and finding new sources of funding to cover the increases.

Inflationary pressures are also expected to persist, keeping material prices high throughout 2025. JLL's 2025 U.S. Construction Outlook anticipates cost growth between 5% and 7%, with variations depending on specific materials and market conditions.

To meet these challenges, industry stakeholders are understandable looking at new ways to source materials. Exploring alternative suppliers and sourcing locally is helping to mitigate the risks associated with global supply chain disruptions. Investing in research and development of alternative materials that are more cost-effective and sustainable are also delivering long-term benefits.

Enhancing project planning and management practices are further leading to better resource use and cost savings. Engaging with policymakers to address trade policies and tariffs that contribute to material cost increases, particularly in the light of US Government changes, can also help alleviate some financial pressures.

But if we are honest, there is no easy answer to all this. The construction industry will continue to grapple with significant increases in material costs, affecting various sectors, which are being driven by multiple factors. However, while the future holds challenges, proactive strategies and adaptations can help industry stakeholders manage and mitigate the impact of rising costs – we will have to wait and see if that happens – but don’t hold your breath.