The issue of rising interest rates has home builders concerned about inflation, higher building costs, and challenges to the economy, which are expected to last for the next few years. The Consumer Price Index (CPI), the broadest measure of inflation, shows an increase of 7.9% in inflation over the last 12 months, the highest in 40 years.

In an effort to stall inflation, the Federal Reserve has been lifting interest rates this year, which has had a ripple effect on all industries. Here are some construction industry challenges that have been caused by higher interest rates.

Although interest rate increases can help with controlling inflation to a certain extent, it can also exacerbate supply chain issues, driving up prices for building materials. Higher interest rates mean that overall, construction projects will become more expensive, particularly affecting the building material market.

Rising construction costs have resulted in an increase in pricing for materials like lumber, steel, concrete, and oriented strand boards (OSB), beginning during the pandemic and continuing to this day. In fact, data from the Bureau of Labor Statistics points to an increase in building material prices by 20% year-over-year—that’s 31% more than January of 2020.

Add to that the limited availability of various building products, which has not been able to keep up with demand. Along with rising construction material costs, builders waiting for longer periods of time for materials to be delivered have caused a record number of new homes under construction to be delayed and remain pending.

To combat increased costs due to higher interest rates, construction firms will have to adjust their project pricing and realign their resources accordingly.

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