For the most part, the cost of construction directly corresponds to homeowners insurance rates. The pandemic wrought by COVID-19 has led to a massive rise in construction costs. With the soaring costs, homeowners may be forced to pay more for insurance coverage.
Analysis of Constructions Costs
The restrictions and supply chain disruptions that followed the COVID-19 pandemic led to many manufacturers limiting the production of construction materials. A combination of this with low housing inventory, low interests rates, and an increase in demand for housing caused property prices to rise about 13% in March 2021. Here is a breakdown of the factors behind this surge in construction costs.
- Total Reconstruction Cost Analysis: Within the July 2020 – July 2021 period, total construction costs (retail labor and materials) rose 16.7%, which is double the 8.1% increase in the April 2020 – April 2021 period. The main driving factor in the rise of reconstruction costs is the price of lumber, which rose 162.7% year-over-year. Reconstruction costs went up in all states, with the largest increase being in Idaho (22.9%), Hawaii (20.2%), and Maine (19.3%). The lowest change was in Florida, at 12.8%. These states reflect the overall nationwide trend. This rise is mostly driven by shortages due to pandemic-related shutdowns, an ongoing boom in renovations and building, as well as the demand outstripping production.
- Material Cost Analysis: Within the July 2020 – July 2021 period, the combined cost of construction materials went up by 30.4%, which is double the 15.2% increase within the April 2020 – April 2021 period. Lumber kept the lead with a 162.7% increase. Other materials that recorded notable price increases during this period include drywall (10.4%), interior trim (7.8%), and paint (7.2%). The prices for other key construction materials, including concrete, cement, and copper, also soared over the past year.
- Labor Cost Analysis: In the July 2020 – July 2021 period, the overall cost of hourly retail labor rose by 4.1%, exceeding the 3.8% increase recorded between April 2020 and April 2021. The largest increase was plumber costs that rose 4.9%. Electrician costs followed with a 4.5% increase. Conversely, the cost of roofers declined by 0.2% and drywall finishes/installers by 0.4%.
How the Rising Construction Costs Will Impact Property Owners
An increase in construction costs translates to a rise in home replacement costs. This makes rebuilding homes more costly after a calamity. To cover their increased costs, insurers may raise homeowners insurance premiums. However, the cost of construction isn’t the only factor driving up homeowners insurance rates. A rise in climate-related claims and regulatory changes can also force insurance companies to raise premiums.
As construction costs surge, you should review your homeowners insurance to ensure that the existing policy coverages provide you with adequate protection. While you may avoid paying higher rates by lowering your coverage or maintaining your current coverage, you may have to pay higher out-of-pocket costs if disaster strikes. At Hoffman Brown Company, we are committed to providing you with comprehensive policies that’ll adequately protect your home. Contact us today to learn more about increased construction costs or make any changes to your existing coverage!