March 28, 2022

Building or remodeling? Learn how rising building-materials costs can impact your homeowner insurance

building-materials costs impact homeowner insurance

It’s a familiar refrain lately: Everything costs more. Thanks to the pandemic, supply-chain issues, rising inflation, labor shortages, global unrest and environmental and weather-related disasters, stuff just costs a lot more now. This includes the cost of building or renovating a home. If you are planning to build or remodel, or have recently done so, consider this: Rising building-materials costs directly affect your home’s overall insured value. In other words, your insurance coverage may not be enough to cover the costs to repair or rebuild in the event of a home disaster. Take steps now to protect your investment.

The supply-and-demand tug-of-war for building materials

The construction industry has been among the hardest hit by supply-and-demand issues over the past few years, with construction-materials prices jumping by 20% in 2021, according to the Associated General Contractors of America, as reported by Supply Chain Dive. Demand for construction products and materials has consistently outpaced supply. Lumber shortages and prices, in particular, have yo-yoed throughout the pandemic. According to the National Association of Home Builders, higher lumber prices have increased home-building costs by more than $18,600.

Causes for the shortage of materials have been varied: Demand for construction materials continues, making it perpetually difficult to keep up on the supply end. Severe weather events (wildfires and severe storms) on the US West Coast and in Canadian forests have caused supply-chain disruptions. The COVID-19 pandemic has only exacerbated supply-chain issues, in large part due to labor shortages in the shipping and trucking industries. The construction industry as a whole is also dealing with huge labor shortages as a result of the pandemic’s Great Resignation, as workers have left construction jobs for many reasons.

Yet demand for housing persists and is expected to continue for some time. The historically low interest rates seen during the pandemic unleashed population movement, resulting in skyrocketing sales of existing homes. Many people also began to make pandemic-instigated lifestyle changes (working at home, taking more leisure time, repurposing spaces) that resulted in a boom in home renovations. After a slump earlier in the pandemic, new-home building now seems to be rebounding, too, despite continued supply-chain issues. All of this has contributed to increased demand, resulting in increased costs for construction materials.

Costs for lumber, drywall and other building materials are not expected to drop in the immediate future. According to a recent report by Cincinnati Insurance, those who are planning to build a home can expect building delays, as builders halt construction entirely or pour the foundation and then pause construction until prices drop. For new builds and renovations alike, homeowners can expect that contractors will pass along costs to buyers by including price-escalation clauses in contracts.

If it costs more, it needs more insurance protection

Here is the point: If it costs more to rehab a space or build a new home, it will cost more to repair or replace it, should disaster strike. That’s why it’s a good idea to make sure your considerable investment is sufficiently covered by your homeowner policy.

Reach out to your Bradish agent and explain the scope of the project. Your agent can help you decide what coverage options are best for your situation.  

Some policyholders may want to consider guaranteed replacement cost coverage or enhanced replacement cost (also called extended dwelling coverage), which would cover a higher level of reconstruction costs in the event of a disaster. Additionally, some carriers now offer automatic annual inflationary coverage increases as part of the homeowner policy, to make sure increasing value in the home is covered. Call your agent to learn more about these options. Whichever coverages you choose, affordable options are available to protect what may be the largest investment you own — your home.

by Kris A. Mainellis