The big blowout
Supply chain disruptions and elevated energy prices have combined to drive an outbreak of global inflation not seen since the 1970s. The inflationary surge for housing construction is even more severe, marked by outsized price gains for all types of building materials.
After the peak
In 2023, there are more consistent signs of slower inflation (or prices rising at a more moderate rate). Indeed, swiftly responsive inputs like fuel and steel are already showing outright price falls. Meanwhile, slower and less responsive inputs like timber, tiles and cement are still showing price gains, albeit at a more subdued pace.
Comes the descent
After the peak, the step down in price inflation will look much like the initial step up in reverse. Historically, the cost passthrough – both over time and across different components – follows a consistent sequence upwards and downwards. In short, the construction sector is on track for a broader phase of slower inflation in 2023 and 2024.
The big squeeze
Higher input costs have been driving a big squeeze on construction profits and some high‑profile builder failures. As cost inflation eases and sales improve, the worst of the cost squeeze is now behind us, as builders move to restore margins in a strengthening residential market with considerable undersupply.
Building in more headroom
In this new landscape, builders are resetting their feasibility thresholds to account for higher materials and funding costs. Notably, contract builders are opening their books, moving off fixed‑cost contracts and building in more contingencies to account for cost and other uncertainties.
Implications for construction
The unexpected surge in costs since 2020 has reshaped the building and contracting landscape in 2023, as inflation eases and builders move to restore profit margins, at a time when selling prices are showing a strengthening rebound.
