Inflation and Construction: Should You Wait to Build?

You’ve probably heard a lot about inflation over the past several months. Inflation has impacted nearly every aspect of the economy, and the construction industry has not been spared. It’s true that construction prices are high at the moment, and they’ve been rising quickly for the last two years.

Many homeowners hoping to add an accessory dwelling unit (ADU) are wondering about the implications these high costs will have on their development plans. With cost of construction materials and contractor labor so high, is now a good time to build an ADU or JADU? Or would it be better to wait until prices come down?

In the following blog post, we’ll learn how and why prices are so high, when they’re likely to come down, and how the country’s current economic situation impacts your ADU build.

Why are construction prices so high?

Unfortunately, this question doesn’t have a clear-cut answer. There are a number of factors that have coincided to raise prices so much, and they include:

• Pandemic-related supply chain issues
• Surge in construction demand (following a pandemic-induced construction lag)
• Overall inflation

When will construction prices come down?

Another difficult question.

While we can’t see into the future, it doesn’t look like prices will come down substantially anytime soon.

The price of lumber—which skyrocketed over the last few years—is finally starting to decrease, but that’s only one piece of construction costs (and it doesn’t have a large impact on certain types of building projects, like garage conversions). And although lumber costs are declining, other materials involved in ADU construction are less likely to decrease as quickly.

Until construction prices flatten, labor prices are likely to remain high as well. Many contractors and other building professionals have had to raise their prices to account for the high cost of construction materials.

Another contributing factor is the current high demand for construction labor. During the pandemic, many construction projects were put on pause. Now that life is more or less back to normal, all of those projects have resumed building. There aren’t enough contractors to meet the need, which enables them to raise their prices. Once the demand for construction settles down, material and labor costs will stabilize. When that will happen, however, is difficult to predict.

Should I wait to build an ADU?

While it might be tempting to wait it out, it doesn’t look like prices will be decreasing in the near future (and they might continue to rise for a while first).

Material prices might come down in the next year or two, but labor costs are likely to continue increasing. Because labor makes up a large portion of a construction project’s overall expense, it’s very possible that construction prices will increase before they come back down.

How to mitigate high ADU construction costs

Although there’s nothing the average consumer can do to lower construction costs, there are some measures you can take to make sure you’re getting the best possible yield out of your investment.

1. Apply for an ADU grant

CalHFA offers a $40k grant for qualifying applicants to help cover soft costs associated with building an ADU, but you’ll need to act quickly. There are a limited number of CalHFA ADU grants still available, and these grants can help offset the rising costs of construction. If you qualify, apply now!

2. Get high-quality plans and permits

Having a detailed set of drawings and permits in hand will help you get the most accurate bids (for more information, read our post about ADU plans and permits). This can help you avoid unexpected expenses during the construction process and help you create a realistic budget for your project. Otto’s Design & Permit services can help you get started, even if you’re not sure if now is the right time to build.

3. Hire an experienced construction management team

An ADU is an investment that always increases your property’s value, and there’s never a bad time for that. And although they cost more upfront, better quality accessory dwelling units have a higher income potential and increase your property’s value more substantially.

Hiring ADU experts like Otto to build your granny flat will ensure that its design, materials, and labor are all held to a high standard of quality.

No one can predict the future, but Otto can help you increase your property value with a beautiful, exceptionally built custom ADU. Contact our team to start planning yours today.

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