Rising Construction Costs and How It Affects Your Insurance

Written by Michael Flanigan—Agency Co-Owner

August 30, 2022 · 3 minute read · Commercial Lines, · Personal Lines

Blog Rising Construction Costs and How It Affects Your Insurance

Currently, everyone is finding solidarity in the shared pain of high construction costs. It doesn’t matter what’s being built, the prices are much higher than the pre-pandemic standard.

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None of this is new, but you may have asked why prices are so high?

And how do these increased costs affect the insurance coverage on your home or business?

It would be nice to have a simple answer. The construction price woes we’re experiencing right now are due to several complex factors:

  • More costly raw materials
  • A shortage of skilled workers
  • A nationwide low housing inventory


Raw construction materials are more expensive.

Part of the construction cost increases we’re seeing can be attributed to more expensive construction materials.

According to the April Producer Price Index (PPI) report, almost all construction materials are more expensive than ever, including softwood lumber, gypsum products, and ready-mix concrete. Steel product prices are decreasing, but the price index was still more than double pre-pandemic levels as of April 2022.

The increased prices for materials are primarily caused by higher demand and supply chain interruptions.

More demand for construction.

There’s a much higher demand for new construction than usual — for residential and commercial buildings. However, the number of raw materials available hasn’t changed much. Companies are producing them as fast as possible, but the demand is so high that it’s challenging to keep up.

Supply chain interruptions.

When the pandemic hit, the world came to a screeching stop. Globally, specific industries and goods were prioritized, and very few people were interested in building a new home or office space during the height of the pandemic. It took longer for construction materials to reenter production, and even then, it’s been a prolonged struggle for supply chains to return to what they were.


There’s a shortage of skilled workers.

Before the pandemic started, the nation began seeing a shortage of expert construction workers: framers, rough carpenters, fine carpenters, concrete workers, etc. 

Fast forward through the pandemic and the “great resignation,” and the shortage has only become worse. Many skilled craftspeople chose to retire early or enter a different field altogether. General contractors have been scrambling to fill the gaps, especially with the current demand for new construction. In late 2021, 62% of general contractors reported high difficulty finding skilled workers.

The skilled worker shortage, in turn, causes delays, which ultimately cost builders money. From there, many contractors try to share or offload the cost onto the consumer’s shoulders.


A low housing inventory drives up new construction prices.

Much of the demand for new construction comes from the nationwide low housing inventory. During the pandemic, there was much less development. However, people’s lives were still changing.

Many businesses have wholly embraced the remote or hybrid work model, allowing many people and families to move wherever they want. As a result, many moved from large urban centers to smaller, more affordable towns in suburban or rural America. Cities that historically had a slow growth rate were suddenly overrun, and prices skyrocketed as communities struggled to keep up with the new demand.

At the same time, property investors were buying inexpensive homes and renovating them to create short-term rentals. It’s been a lucrative business choice for many, but it has also decreased available long-term housing.

Your current insurance coverage may not be adequate.

Whether it’s your home or business, building replacement costs are at an all-time high. Your current coverage may not be adequate, leaving you at risk. There are several questions to consider regarding your insurance policy.

  • Have you reviewed your current insurance policy, and do you understand what it covers?
  • If disaster strikes, are you fully prepared? Are the terms of your policy, such as coverage limits, coverage types, and valuation methods the best fit for you?
  • Is your insurance carrier notified whenever you make upgrades or renovations to your home or business property?

I’m here for you. I can answer your questions, help analyze your current policy, and find ways to manage your risk. Let’s talk!