How supply and demand are affecting building cost inflation

Some of the key insights include: 

• Building material and labour cost inflation rose at its fastest pace in nearly 50 years on the back of supply constraints over the last 12 months 
• The cost of structural timber, plywood and steel reinforcement have all increased by more than 25 per cent over the past year, with some products such as structural timber rising by more than 40 per cent
• Drawing on a model used by the San Francisco Federal Reserve, NHFIC’s analysis demonstrates that 83 per cent of all residential building material cost inflation in 2021-22 has been due to supply constraints
• Building cost inflation in the prior fiscal year was strong, but considerably less than in 2021-22, with 75 per cent of total building cost inflation in 2020-21 due to demand pressures

Recent data suggests that global supply chains pressures have moderated over the last six months, indicating the supply influences on construction costs are likely to ease. Anecdotal evidence from the construction industry suggests that labour costs have become of increasing concern more recently.