b'PRESIDENTS MESSAGECONSTRUCT COSTFORECAST MOVING BEYOND THECOVID PANDEMICT hirty years ago, economistscost inflation are out of sync. Take, forconstruction cost escalation. A sheet of argued that inflation was a minorexample, a single-family home in the five-eighths plywood that a consumer inconvenience and that the costGTA constructed between Q1 2020 andpurchased at Home Depot in Q1 2020 for of reducing inflation was too highQ1 2021.approximately $48 cost you nearly $130 a price to pay. No one would make thoseone year later. During roughly the same arguments today, least of all as it relates toConstruction costs rose approximatelyperiod, a contractor who paid $0.34 per soaring construction costs. Sam Ewing, a$30,000, with lumber likely accountingpound of steel for sheet metal in early former Toronto Blue Jay, dumbed it down afor upwards of $19,000. Historically,2020 was paying $1.80 in 2021. bit: Inflation is when you pay $15 for thethe rise in value would be in sync with $10 haircut you used to get for $5 whenhigher construction costs, but recentAs consumers, we expect contractors to you still had hair.purchasers unfortunately discoveredabsorb these cost increases but that is that the home that just cost them anunrealistic. And buyers of construction The impact of soaring construction costsadditional $30,000 appreciated by lessfail to understand the economics behind in 2021, however, is infinitely morethan a third of the higher incrementalthe headlines. Contractors do not control complicated than the inflation Samcost. This, of course, is not sustainable. material input costs. Take steel, for described in the 70s for several reasons.instance. Why have prices escalated so First and foremost, global pandemicsLet us be more specific about higherquickly and how has that impacted the change the paradigm entirely becauseconstruction costs. In a recent interviewcost of a non-res structural steel building? the impacts are catastrophic andon Global television, I used two examplesPut simply, mill prices account for roughly unpredictable. Secondly, revenue andto put some perspective around current25 per cent of the price of steel installed and the mill price of steel is up100 per cent in six months. That we cannot control.Moreover, structural steel represents nine THIS KIND OF COST VOLATILITY CONSTITUTES GENUINEto 10 per cent of the total construction cost for a prototypical commercial steel building. General contractors bound by DISRUPTION AND NOT IN A GOOD WAY. MORE TO THEpre-COVID lump sum contracts can often not recover these higher input costs and steel subcontractors bound by similar POINT, THE IMPACT OF MATERIAL INPUT COST VOLATILITYterms and conditions cannot afford not to recoup these costs. IS EVERY BIT AS DISRUPTIVE TO A CONTRACTOR AS THEI recognize that inflation is not always a one-way street. And to be clear, that four by eight sheet of plywood that cost the PANDEMIC ITSELF. IN SOME CASES, IT IS WORSE consumer upwards of $130 in April or May 2021 is now below $100. I must also be clear, however, that this kind of cost volatility constitutes genuine disruption and not in a good way. More to the point, 6Quarter 22021 BUILDERSDIGEST'