Construction Costs are up…Are you and your insurance prepared?

Before you start that construction project, get ready for a bit of sticker-shock when you start pricing it out.  It doesn’t matter if you are doing it yourself, using a handyman, or contracting with a skilled tradesman.  Material and labor costs are up across the board.  So why is this happening and how can I be prepared?

Multiple factors are driving these increases – supply and demand of products, international trade tariffs, steep inflationary rates, labor shortages, shipping delays, increases in petroleum gas prices, a lack of truckers to haul products, and Covid shutdowns.

In the Cincinnati Insurance article by Cheri Tuerck, she shares, “According to The Joint Center for Housing Studies of Harvard, spending on home improvements and repairs grew last year [2020] by more than 3% despite the overall economy decreasing by 3.5%. This makes sense given people are spending more time at home – many of which were ill-equipped to support pandemic-era lifestyles and functional work environments.” 

This statistic alone is cause for much of the building material and labor costs.  Homeowners are investing in new homes and need materials and skilled tradesmen to do the work, or homeowners are improving their homes and need materials to complete the work themselves.

In the same article, Cincinnati Insurance illustrates just how steep the rise in building costs is by sharing that the cost to build a home in Idaho has increased 61% since 2019.  “[The cost of a] home they built for $589,500 in 2019 now costs them $946,671. Increases span the full construction process.”  

These are very high-cost increases when you compare them with cost increases of other household items such as eggs or milk, which have increased 7.2 % and 9.2% respectively since 2019 (US Inflation Calculator, https://bit.ly/3qTcrAj).

So, with the rise in construction costs, we are faced to look long and hard at what can we do in light of this.

First off, set a budget for your home project to include an extra 15-20 percent in that budget for contingencies.  Once your budget is set, stick to it.  If that imported mosaic tile from Italy isn’t in your budget, find something else.  There are so many options out there on the market today.  It may take some time to locate and/or order but staying within budget is critical.  Save your contingency for those unexpected expenses that you uncover along the way such as leaky plumbing that you only uncover when you pull out drywall.

From a property insurance perspective, your carriers have tools to help you keep up with these increased costs.  Some of these are built into the policy form such as Auto-Owners’ policy, “[whose] policies have automatic safeguards to increase property coverage limits for upcoming renewals by using information tied to the Boeckh Factor.”

Cincinnati Insurance “offer[s] world class coverage options that make insuring to value easy [such as] Enhanced Replacement Cost at 25% and 50% and Guaranteed Replacement Cost Options.”  Cincinnati further says, “As of August 1, 2021, close to 90% of our homeowners policies have these coverages.” That is a testament to your dedicated independent insurance agent who knows the importance of protecting you during these volatile times.

For more information, visit these articles from Cincinnati Insurance:  https://bit.ly/3n1CPa5 and https://bit.ly/32MJRsl and this one from Auto-Owners Insurance: https://bit.ly/3sGvEWp

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About Joe Popkowski