Construction costs remain sticky over economic uncertainty

Despite government efforts to reduce inflation and stabilise interest rates, eggheads predict that the cost and supply of materials and labour will continue to put pressure on the industry, mirroring an unsettled and unpredictable outlook this year, CHINEDUM UWAEGBULAM reports.

There are concerns that the industry still faces economic uncertainty in construction costs this year, as several factors, including exchange rate volatility, rising energy costs, increasing transportation expenses, and inflation, continue to exert pressure on construction material and labour costs across the country.

The exchange rate for dollar to naira is currently N1,492.470, while Nigeria’s inflation rate dropped to 24.48 per cent in January 2025, from December’s 34.80 per cent, following the rebasing of the Consumer Price Index (CPI) by the country’s statistical office to accurately reflect changes in consumption patterns.

The National Bureau of Statistics (NBS) clarified that the decline in the rebased inflation rate does not reflect a decrease in the general price level, attributing the drop to the new base year (2024) being closer to the current period.

Rebased food inflation, which constitutes more than 50 per cent of Nigeria’s old inflation basket, was 26.08 per cent year-on-year in January, down from 39.84 per cent in December when the old methodology was applied.

Similarly, the rebased core index which excludes the prices of volatile agricultural produce and energy stood at 22.59 per cent on year in January, down from 29.28 per cent in the month before. However, despite the lowering of the fuel price by the Dangote Refinery and affiliated marketers to N825, major marketers retail the commodity at N970, which has affected haulage and materials costs.

The development has continued to disrupt supply chains and increase prices. In the building materials market, the prices of building materials have remained high in different parts of the country. For instance, a bag of 50 kilogrammes of cement sells for N9,500, while other components such as six- and nine-inch blocks range between N500 and N900 respectively. Iron rods and aluminium products have almost doubled.

Senior officials of the Real Estate Developers Association of Nigeria (REDAN) told The Guardian that the major contributor to construction cost uncertainty is the surge in fuel prices, which directly impacts construction costs.

“Many manufacturing plants rely on petrol, gas, and diesel to power their operations, making them susceptible to rising energy costs, which, in turn, affect construction material prices.

“Additionally, since a substantial portion of construction materials is imported, exchange rate fluctuations further spike prices, leading to increased overall construction cost,” according to the association’s President, Mr Akintoye Adeoye.

He predicts, “In 2025, construction costs are expected to remain high due to persistent economic challenges such as inflation, exchange rate fluctuations, and rising energy costs. The increasing cost of materials, labour, and logistics will continue to exert pressure on overall construction costs. However, despite these challenges, a slight stabilisation may occur in the latter part of the year, if government interventions and economic policies yield positive results.”

To further address this uncertainty, REDAN is championing innovative strategies to drive positive change in the real estate sector. “Our association has consistently advocated the increased use of locally sourced building materials to enhance housing affordability and ensure excellence in every project.”

He said: “One of the primary drivers of construction cost fluctuations is the rising cost of fuel, which significantly impacts the prices of building materials. Many manufacturing plants depend on petrol, gas, and diesel for their operations, making them highly sensitive to energy price increases.

Since the production and transportation of construction materials require substantial fuel consumption, any reduction in fuel costs or a shift towards alternative energy sources could help stabilise or lower construction costs.

“Another key factor is exchange rate volatility, as a large proportion of construction materials are imported. A weakened local currency leads to higher import costs, thereby increasing overall construction costs. A more stable exchange rate would help in controlling construction cost surges and ensuring cost predictability.”

Adeoye suggested integrating contingencies into construction budgets to account for uncertainties. “A best practice is to allocate a percentage of the total construction cost as a contingency reserve, which acts as a financial buffer for unforeseen expenses. As the construction progresses, these contingencies can be adjusted, ensuring that construction budget estimates remain both realistic and sufficient to accommodate unexpected increases.

“Although uncertainties persist, industry stakeholders can navigate these challenges effectively through proactive planning, strategic cost management, and leveraging emerging opportunities.”

To tackle rising construction costs and promote economic stability, Adeoye urged the government to introduce targeted policies such as tax incentives, subsidies for local manufacturers, and improved financing options for developers, adding that the adoption of advanced construction technologies, alternative building materials, and innovative techniques will enhance efficiency and sustainability while reducing costs.

He also called for government investment in critical infrastructure such as roads, ports, and railways to improve supply chain efficiency, ultimately reducing logistics costs in the construction sector. ‘Implementing temporary energy subsidies can provide short-term relief, while long-term strategies should focus on promoting renewable energy adoption to create a more cost-effective and sustainable construction industry.

“Furthermore, the government must create an enabling environment for private sector participation in housing development. This includes streamlining land acquisition processes, eliminating bureaucratic bottlenecks in land titling and approvals, and ensuring policy consistency to build investor confidence, REDAN president added.

The immediate past president of the Nigerian Institute of Town Planners (NITP), Mr Nathaniel Atebije, said the rising cost of materials has continued unabated. “Globally, it is projected that construction costs may rise by about 7 per cent, Nigeria’s case is worse off because of the heavy dependence on imported construction materials and equipment. Beyond this, the economic downturn in Nigeria may not encourage construction; hence the cost of construction would not be favourable.

“Expectations in the construction industry in 2025 cannot be pleasant because the trend over the past 20 months (or rather since the current regime took over administration) has been so frustrating. The sector has suffered significant cost escalations primarily due to high inflation and increased fuel prices, which have driven up material and transportation expenses. Initial projections of yearly growth rate in the industry at about 3.1 per cent from 2025 to 2028 does not seem to be achievable due to the strains of inflation and poor cash flow among the participants in the sector.”

Atebije named key elements that may cause changes in construction costs would be the combination of economic policies, market conditions, technology adoption, and government regulations. For example, in estate development, changes in land acquisition policies, permit fees, and zoning laws impact construction expenses.

He noted that the desire for internally generated revenue of government agencies has led to upscaled costs of permits for development projects. A case in question has been the incessant increase in such fees by the Lagos State government, which has generated a lot of concern.

“For a positive change in the economy, we need to overhaul some policies, encourage industry innovations, and promote strategic investments. These could take the form of strengthening local material production, (for which we have organised so many talk shows without adequate action); encouraging the deployment of improved construction technology and enhancing investment in vocational training to develop a local skilled construction workforce and reduce reliance on foreign expertise.

He said: “The private sector should be encouraged to participate in construction training programmes. The government needs to decisively intervene in reducing energy and transportation costs through vigorous improvement in transportation infrastructure to lower logistics costs of materials and develop rail and inland waterways for bulk material transportation. There is a need to create and improve access to low-interest financing for construction, review government policies and taxes and provide tax reliefs and subsidies for affordable housing developers.

“Government needs to be on the driving seat to promote mass housing development by encouraging large-scale affordable housing projects to create economies of scale, support housing cooperatives and community-led developments and leverage modern construction techniques to deliver low-cost housing efficiently. Embarking on these measures, positive impacts can be created on the economy and can reduce construction costs and enhance infrastructure development.”

The Managing Director of Nigeria Integrated Social Housing (NISH) Affordable Housing Limited, Dr Yemi Adelakun, said the uncertainty in construction costs will persist as long as most construction materials are imported, and the cost of funds is high.

He recommended an increase in local production of building materials, deployment of cost-effective and efficient technologies, sound project management practices, capacity building, easy access to affordable construction finance, government land allocation and infrastructure development, as well as seamless titling and development control approvals.

Adelakun urged the government to promote local manufacturing of building materials, adopt special windows for low-interest rate construction finance, rapid processing of titles and development control approvals, and public-private partnership through land equity.

The President, Commonwealth Association of Surveyors and Land Economy (CASLE). Mr Olusegun Ajanlekoko, differs, saying that the cost of construction is moderately controlled due to foreign exchange stabilisation since the commencement of the year.

“There is not likely to be any astronomical increase in construction cost this year as most are looking inwards for sourcing of materials. Cement cost stability as well controlled price of oil should help stabilize construction cost overall.”

According to Ajanlekoko, the government’s economic initiative is helping to achieve the desired result without any intervention. The market is regulating itself and that’s good overall for achieving market stability.

“The government macroeconomic pursuit alongside supporting homegrown local production should offer some modicum of growth.

Ajanlekoko, a past president of the Nigerian Institute of Quantity Surveyors (NIQS), said upscale agricultural schemes and solid minerals should be a good catalyst for economic development.

“Within the construction industry, if the pursuit of the production of iron rods can be given a head start, then we may be able to have stability in the industry with the ready availability of local cement. These are two key elements that determine the fate of the industry,” he added.

Immediate past NIQS president, Micheal Shonubi, hopes that prices will be moderated, given that major cost drivers, such as forex rate instability and inflation, are somewhat under control. “The ability of fiscal and monetary authorities to maintain control over these drivers will significantly influence the trajectory of prices. However, external factors, such as supply chain disruptions and tariff wars, could also impact construction costs.

“If current Forex rates are maintained, the prices of materials albeit construction costs will remain stable. However, labour prices are likely to increase due to the pending implementation of the minimum wage in the construction industry. This, coupled with a skills shortage and heightened demand for skilled labour, will result in a general rise in construction costs,” Shonubi added.

To address these challenges and foster economic growth, he urged the government to enact legislation to address labour shortages and enhance skilled labour development, as well as to promote patronage of local materials and reduce import duties on construction materials, particularly those that cannot be produced domestically.