According to recent studies, the cost of construction rose this year. This in turn has prompted the demand for home renovations to decline. Incredibly, this is the first time in years that construction costs have outpaced renovation demands!

Contractor confidence in the market for home improvements and repairs is measured through a weighted average of several factors. These include current market conditions, future market conditions, and recent changes in business conditions. A score significantly above 50% indicates that the majority of contractors view market conditions as favorable.

This year, contractor confidence was only slightly above 50% and it has continued to decline, coinciding with increased construction costs. This makes sense, given that contractors are less likely to undertake renovation projects knowing that they’ll pay more for materials and labour.

What’s driving the increase in construction costs?

There are a few factors at play here. First, the cost of lumber has been on the rise due to tariffs — one of the most commonly used building materials in the country. Labour costs are also on the rise. Unemployment has reached record lows, meaning workers have more bargaining power.

What does this mean for property developers?

For starters, you’ll need to factor in increased costs for materials and labour. Secondly, it’s worth keeping an eye on the contractor confidence score — that way you can get a sense of how other contractors are feeling about undertaking new projects. If the score remains low, it could mean that there’s less demand for renovations overall. This could then lead to lower prices for fixer-upper properties.

As the increase in construction costs is having a ripple effect on the housing market, as a property developer, it’s important to factor these in when planning any property flipping or major renovations.

 

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