Are Rising Construction Costs Taking a Toll on Home Builders and Buyers?

Rising construction costs

Just as the pandemic has impacted businesses and lifestyles across the country, it has also

impacted the rebuilding of those lifestyles as we trade cities for rural living and look for houses

that we can happily quarantine in. One of the more popular options for finding your dream

home…is to build it, or to look at a pre-construction option in the area of your choice. Read

ahead to learn about how the new-build industry has been impacted and how to protect



How are buyers impacted and what can we do?


As far as new home builds, the prices for windows and doors, appliances, electrical materials,

and plumbing fixtures have all increased. The wait for windows has grown from 3-4 weeks to

10, and these waits cost money. All these home-related expenses have grown due to supply

shortages, transportation and border delays, and pandemic shutdowns in various parts of the



Most builders indicate that they are passing the increased costs on to their customers. While

this seems a fair solution, some indicated that without knowing how much the increases would

be at the end of a contract, they were estimating above the increases. This means some

customers are being asked to pay more in anticipation of those increases. This has resulted in

new potential owners cancelling contracts in hopes that they can “wait out” the rise in prices.

As many as 40% are cancelling projects because the loans they originally qualified for are no

longer enough to cover the costs.


Eventually, the industry will get to a point, and many areas are already in the midst of this trend,

where the number of available homes is reduced, and the market gets even tighter for those

who are seeking them.


As a potential home purchaser, there are some things you can do to protect yourself. First and

foremost, talk to someone in the lending industry and find out what you can truly afford. Factor

in increased costs and potential further increases. Do not spend more than you can afford. You

can add a finished basement, luxurious exterior landscaping, or high-end fixtures when you are

sure, you can manage your mortgage expenses a year or two down the road.


How are builders impacted and what can we do?


Recently there have been surveys conducted in the construction industry that confirm that 70%

of builders report a financial impact on their businesses while 65% report an increased demand

for services. The primary reason for the trouble is the upsurge in materials costs; mainly for steel

and lumber.


The Ontario Home Builders Association has confirmed a report from the CIBC that stated

lumber product prices have tripled since the pandemic. Those costs, according to the report,

are expected to continue rising. The rise in costs has also contributed to significant delays in

 construction, averaging 6 weeks for new homes. These delays affect the expenses for builders

and impact their ability to manage project timelines.


If you have decided to go pre-construction or with a new build, prepare for construction delays

and ensure you won’t be left without a place to live if your project is late. You can do this by

ensuring you have a secure rental property or alternate living situation (such as a trailer on your

property) to stay in until the building is complete.


How are the financial aspects being tackled?


Most builders confirm that prices have risen 10% in the last three months, in addition to

previous increases. This has had a two-fold effect. Appraisers, the people who determine the

true market value of your home to obtain a mortgage, cannot confirm the

higher home prices using comparable homes so borrowing/lending is more difficult. Secondly,

suppliers are unwilling to lock in prices for longer than a week, which means estimates are filled

with uncertainty for both buyers and builders.


This is where a realtor can step in to help. A realtor will negotiate on your behalf to ensure you

get the best deal on your home price as well as the upgrades that may come along with the

package. They can identify the extras and upsells that will not translate well into home value

and steer you away from them. A realtor can navigate the multi-step process and

communications with the different industry professionals around your design, build, inspection,

and appraisal. Your realtor will also have a network of trusted professionals you can use who

are working on your behalf, instead of your builders.


While many people think that not having a realtor for their purchase will work in their favour

financially and that the cost will be subtracted from the sale…this is rarely the case because

builders don’t want other buyers to see those discounts. The bottom line is simple, a realtor will

keep your best interests in mind and ensure you get the best bang for your buck. Reach out to

Blackwell group today to learn how we can help you navigate the market and find or build the

home of your dreams. We can’t wait to connect with you!

Compare listings