Effect of current economic turmoil on house construction cost and industry

The house construction sector is the backbone of any developing or developed economy. It directly and indirectly generates millions of jobs and opportunities and helps keep the economic wheel moving.

During the COVID-19 pandemic, when many other industries were at a complete halt, construction activity continued and helped the labour force earn their living.

However, the economic turmoil in Pakistan significantly affected the construction sector. As a result, house construction cost increased considerably, while the prices of major construction materials such as cement, steel, crush, and sand became increasingly difficult to manage. Official economic and price statistics can be reviewed through the Pakistan Bureau of Statistics

In this article, we analyse how the economic situation affected major construction materials and the overall house construction cost in 2022.

Impact of Economic Turmoil on House Construction Cost

The increase in construction costs was not limited to one material. Cement, steel, crush, and sand all experienced significant price fluctuations.

Each major construction material is discussed separately below.

Cement Prices

Cement is one of the most important materials used in house construction.

By 5 June 2022, the official cement price range in the Lahore region was approximately Rs. 865–890 per bag. Cement was generally available in bulk quantities through retailers and dealers.

After 5 June 2022, however, cement availability became more difficult in some markets. Dealers with limited stock reportedly started selling cement at significantly higher prices, reaching up to Rs. 1,200 per bag.

The situation created additional uncertainty for homeowners and construction companies trying to manage their house construction cost.

At the same time, there were reports of Pakistani cement being exported to international markets. According to a report referenced by the Developing Pakistan Facebook page, DG Cement CFO Inayat Ullah Niazi stated that 50,000 tons of cement would be exported to the United States, with the first shipment being loaded at Karachi Port for delivery to Houston.

While exports can be positive for the economy, maintaining adequate domestic supply and reasonable prices is also important for local construction activity.

Steel Prices

Steel is one of the most important and expensive materials used during house construction.

Steel prices had already experienced a sharp increase during the previous year and a half.

In early 2021, steel was priced at approximately Rs. 107,000 per ton. By the end of 2021, the price had increased to around Rs. 193,000 per ton.

The price remained around this level for several months. However, by June 2022, Grade 60 steel in and around Lahore was selling at approximately Rs. 230,000 per ton.

There were also expectations of further increases due to higher fuel prices and increased taxes on imported raw materials required for steel production.

Any significant increase in steel prices has a direct impact on house construction cost, particularly for reinforced concrete structures where steel is a major component.

Crush Prices

Crush, or coarse aggregate, is another important material used in construction.

In Pakistan, coarse aggregates are produced from mountain ranges around areas such as Margalla and Sargodha. A significant portion of the supply used in Lahore comes from Sargodha crushing stations.

Good-quality graded crush from Sargodha was available in Lahore at approximately Rs. 75 per cubic foot in early 2021.

By December 2021, the price had increased to around Rs. 95 per cubic foot.

By June 2022, the same material was available at approximately Rs. 120 per cubic foot.

Further increases were expected if diesel prices increased because transportation and crushing operations are directly affected by fuel costs.

Sand Prices

Sand prices are also strongly influenced by transportation and diesel costs.

In June 2022, good-quality Chenab sand in Lahore was available at approximately Rs. 38–48 per cubic foot.

In early 2021, the same type of sand was available at approximately Rs. 28–30 per cubic foot.

The increase in sand prices added further pressure to the overall house construction cost.

Summary: Rising House Construction Cost in 2022

Team Overcs previously recorded a detailed video about 2022 grey structure house construction cost, comparing construction rates over several years.

When we first published a detailed grey structure cost video in 2017, the grey structure cost was approximately Rs. 1,150 per sq. ft.

By February 2022, the cost had increased to approximately Rs. 1,859 per sq. ft.

By June 2022, at the time this article was written, the minimum grey structure cost had reached approximately Rs. 2,125 per sq. ft.

This represented an increase of approximately Rs. 266 per sq. ft. within only three to four months.

Construction companies that had entered into contracts without clear price-escalation clauses also faced difficulties because material costs increased after contracts had already been agreed.

What Should We Do During Rising Construction Costs?

If you are constructing your house yourself under a labour contract and purchasing the materials directly, consider discussing reasonable adjustments with your labour contractors to account for additional fuel and operating expenses.

If you are at a stage where you can purchase and store certain materials in advance, planning ahead may help reduce the impact of sudden price increases.

However, materials should be stored carefully.

For example, cement should not be purchased in excessive quantities because prolonged storage can affect its quality. Steel should also be stored properly to minimise exposure to moisture and prevent excessive rust.

A better approach is to plan your construction roadmap and purchase materials according to the work scheduled for the coming weeks.

If your house is at the finishing stage, you may consider purchasing certain finishing materials in advance if storage conditions are suitable.

However, purchasing materials several months before they are required may not always be practical. Storage conditions, material quality, cash flow, and expected market conditions should all be considered.

How Should Construction Companies Handle Rising Material Costs?

If a construction company has agreed to a lump-sum or per-square-foot construction rate with a client, the contract should clearly state whether a price escalation clause applies.

If an escalation clause was clearly included in the agreement and communicated to the client, the additional material cost should be handled according to the agreed contractual terms.

If no escalation clause was included, the client and construction company should discuss the situation and attempt to reach a mutually acceptable solution.

In such circumstances, both parties may consider sharing the additional cost rather than allowing the dispute to affect construction progress.

There are very few well-established house construction companies that can absorb substantial and unexpected increases in material prices within a fixed lump-sum or per-square-foot contract.

Protecting Construction Quality During Economic Uncertainty

When construction costs increase, reducing quality simply to stay within the original budget can create problems in the long term.

As a homeowner, remember that the property is being constructed for your use for many years. The construction company or contractor will eventually complete the project and leave the premises.

For this reason, construction decisions should consider both house construction cost and construction quality.

Instead of focusing only on the lowest possible price, homeowners should carefully evaluate material quality, labour, construction supervision, contractual terms, and the experience of the construction company.

Final Thoughts

The economic turmoil of 2022 had a significant effect on Pakistan’s construction industry and house construction cost.

Sharp increases in cement, steel, crush, sand, fuel, and other construction inputs made it increasingly difficult for homeowners and construction companies to maintain previously estimated budgets.

The experience also highlighted the importance of realistic cost planning, clear construction contracts, price-escalation clauses, proper material procurement, and effective project management.

Construction costs change over time, so historical figures in this article should not be used as current market rates. Always verify prevailing material and labour prices before preparing a new construction budget.