Driving into the New Administrative Capital (NAC), it’s hard to miss the massive structures on the horizon comprising the government’s new headquarters and the business district with the Iconic Tower, Africa’s tallest building, at the center. A broader look shows swaths of desert separating those two complexes with mostly completed, lightly inhabited residential neighborhoods. They dot phase one’s 40,000 acres, which should house 6.5 million to 7 million residents.

That bird’s-eye view highlights how much construction remains for the city to attract its targeted “18 [million] to 40 million people by 2050,” according to NAC’s website.

The new city is one of the 44 metropolises the government wants to start building before 2030 to increase Egypt’s livable area by 55% compared to 2019. GlobalData, a think tank, said in a September report that from 2024 to 2027, Egypt’s construction market will grow an average of 9% annually.

Construction material price movements will be a huge factor in determining how fast those developments progress and the affordability of finished units. Andrew Reynolds, global chair at Rider Levett Bucknall, a construction and property consultancy, told Construction Dive, a specialized portal, in June, “The cost of construction materials and the impact on the viability of projects are discussions we are having daily with our clients.”

Predicting material prices for the coming few years may prove tricky. Al Syed Construction, a Pakistan-based developer, said in a June paper, “It is difficult to predict with certainty … construction costs in 2024.” It cited multiple factors, including raw material prices, demand for new projects and government policies.

Prices, so far

Prices of construction materials have been rising at a noticeable rate since the pandemic. About 82.5% of construction materials jumped an average jump of 19% since 2020, according to price aggregator Gordian in its 2023 Construction Cost Trends by the Numbers report.

In 2022, overall construction costs increased by 9% to 12% compared to 2021, Micheal Harmand of Turner & Townsend, a construction consultancy, told Construction Dive.

Global events also have influenced construction material prices. “The … cost of these materials is subject to market forces, including supply and demand dynamics, trade policies and global economic conditions,” said Al Syed Construction’s paper.

The builder stressed the significant negative impact of persistent global supply chain bottlenecks, first seen when the world was recovering from COVID-19. Ongoing trade wars and geopolitical disruptions threaten further supply disruptions and, in some cases, force buyers to switch vendors.

Al Syed Construction said such events amplified market concerns over the “availability and cost of raw materials, [such as] steel, lumber, cement and copper, [which] significantly impact construction costs.”

Those worries, plus shortages of several construction materials, caused prices to increase. According to Oxford Economics, steel saw the most significant jump at 22% in 2023 compared to 2022. The cost of insulation increased the least at 11%.

Further pushing up prices is that demand for new projects outstriped supply, particularly in emerging markets with fast-growing populations. “The construction industry has witnessed a surge in demand for residential, commercial and infrastructure projects,” noted Al Syed Construction. “This high demand, coupled with limited capacity, has intensified competition among contractors, [making them] less likely to reduce prices, leading to sustained [high] construction costs.”

Domestic strategy

Countries like Egypt with active construction sectors will invariably experience higher construction costs than global forecasts.

Also, a country’s economic health plays a “significant role in construction costs,” noted Al Syed Construction. “Economic conditions, such as inflation or recession, can influence the cost of materials and labor.”

Government strategies, policies and regulations aiming to promote construction also have a “substantial impact on costs,” the Pakistan-based developer noted. “Changes in zoning laws, building codes or environmental regulations can increase project expenses.” It added that construction costs in countries that import building materials also are affected by “tariffs and trade policies.”

In the local market, a paper from the Egyptian Research Forum in November 2022 said, “Land construction and licensing costs, government real estate and housing policies are all perceived as main determinants of housing prices in the Egyptian market.”

Another local factor is that Egyptians perceive housing investment “as the safest form of investment during uncertainty shocks and a good hedge against inflation and other financial turbulence,” the ERF report said. “Stockpiling” of unused residential units means a lower supply for individual home-seekers, increasing prices further.

The ERF cited a “huge discrepancy in information and data on housing dynamics and expectations.” That, coupled with the “stockpiling” problem, allows developers and real estate sellers to set random, often overblown, prices for home buyers.

Spillover effects

The Oxford Economics March report noted that economic decisions by some of the biggest economies affect emerging markets.

One example the report highlighted is the U.S. Inflation Reduction Act. Despite its name, its essence is to promote construction and infrastructure investments, increasing demand for (and, with it, prices of) construction materials worldwide. BDO USA, a law firm, said the act “is anticipated to have a significant impact on the real estate and construction industry.”

However, the act would likely raise the prices of construction materials used in eco-friendly buildings more than conventional options. “The legislation could provide a significant financial boost for firms looking to utilize environmentally conscious building materials and practices,” said BDO USA.

The second factor affecting international prices is China’s plan to resurrect its stagnant real estate sector starting next year, resuming a more robust growth rate starting in 2025,” said the Oxford Economics report.

Meanwhile, India, the world’s most populous country since mid-2023, will likely see a real estate construction boom to cope with its population growth rates. GATN Capital, an India-based investment firm, said in a LinkedIn post in September that demand for construction in the country includes buildings to house tech companies, manufacturing facilities, and residential and commercial units and complexes.

Several macroeconomic factors sustain high prices by ensuring high, if not increasing, demand for real estate. GATN Capital said factors include low-interest rates, government initiatives that promote buying property, accelerated infrastructure development and a favorable young demographic.

Projected growth in construction in those countries will likely last for a long time. Oxford Economics predicts the value of construction activity worldwide will increase from $9.7 trillion in 2022 to $13.9 trillion by 2037 — driven by superpower markets China, the United States and India.

Another factor that will eventually push up material costs is rebuilding cities being destroyed by ongoing wars in Europe and the Middle East. Oxford Economics estimated the bill will exceed $1 trillion in Eastern Europe alone. “Ukraine may need as much as $1.1 trillion in outside assistance to repair the damages inflicted by Russia’s invasion,” European Investment Bank chief Werner Hoyer told Bloomberg in June 2022. Meanwhile, reconstruction estimates have yet to be calculated for Gaza.

Fuel for thought

Decisions from OPEC nations, a cartel of the world’s biggest oil producers, to influence global oil prices also impact construction costs. In October, JLL’s 2023 Construction Market Intelligence report noted that oil-exporting nations increase investments in construction if their foreign currency revenues increase.

In addition to elevated demand for new projects boosting prices of construction materials, they also would increase in tandem with the cost of oil. “Every aspect of construction jobs is affected in some way by increases in the price of fuel,” explained Custom Truck One Source, a U.S.-based truck supplier, in a May 2021 blog. “The most direct effect of rising fuel prices is having to pay more to run equipment and transport people to construction job sites.” The company added that fuel prices also affect the cost of transporting construction materials

However, those dynamics are evident only when there are no oil price shocks. “Stable oil prices [regardless of their price level] ideally create a favorable environment for construction projects,” the JLL report said. “Oil price shocks can impact construction funding in economies heavily dependent on oil revenues.”

According to a September 2021 report from Oxford Economics, the transition to green energy is another factor likely to increase construction prices in the coming years. Al Syed Construction’s paper explained that compliance with environmental standards “often necessitates the use of specialized equipment, materials and labor.”

Forecast: materials

Al Seyd Construction stressed that forecasting construction material costs is an “increasingly complex task.” The main reason is divergent views over which global factors (global supply chain disruptions, geopolitical tensions, economic recovery patterns, and government policies) will continue to influence the raw material market in 2024 and beyond.

Oxford Economics noted that even if construction material prices fall toward the end of 2023 and in 2024, they will “remain elevated compared to pre-pandemic levels.” In August, Adam Sanford, an operations lead at Southern Construction Framework, a U.K. government joint venture, told The Construction Index, a specialized portal, “Contractors [were] expecting a 6% … increase in building costs over the next year. [That] compares to this time last year, when contractors predicted a 10% increase.”

Puttachard Lunkam, an analyst at Thailand-based Bank of Ayudhya Public Co. Ltd, said the “construction material industry will enjoy improved outlook [i.e., higher price jumps] from 2023 to 2025, thanks to better conditions [in the international] market.”

Forecast: projects

Sam Giffin, director of data operations at Gordian, expects more demand for construction projects next year. “Although we’re in the middle of a downswing from historic pricing peaks in 2022, increasing demand for construction will likely sustain material … prices through 2024 and 2025,” he told Construction Dive in June.

Research by the Bank of Ayudhya Public Co. Ltd. published in July shows new projects will continue to rise until 2025, particularly in emerging markets. It cited continuing construction on national projects, recovery of real estate driven by the private sector alongside government-led construction, and maintenance needs of older buildings.

Lunkam also noted that more construction activity means fossil fuel prices will play a more prominent role in determining the costs of building materials.

Looking ahead, there is little chance construction costs will drop in the coming few years. “Increased demand, a shifting geopolitical landscape and the rise of near-shoring materials production make it unlikely that we’ll see sustained pricing regressions,” Adam Raimond, construction index manager at Gordian, told Construction Dive,

Policy balance

The Oxford Economics report stressed the role of central banks in shaping the future of

construction material costs and project demand. Part of that is the effectiveness and suitability of the central bank’s construction-related initiatives, incentives and programs.

The other impact on construction costs is the changing direction of each country’s monetary policy, which central banks use to balance rising inflation rates with economic growth by adjusting interest rates. Higher rates would reduce economic activity, lowering demand for new properties, dropping construction material prices along with the number of projects, and vice versa.

Central banks, particularly in major economies such as the United States, India and China, where decisions influence smaller emerging economies, should exercise caution. “Central bank mismanagement of interest rates could cause a cumulative drop of $2 trillion globally for construction by 2027 relative to our baseline forecast,” said the Oxford Economics report. That knocks off almost 1% from global growth.”