BUIL08 - EFFECT OF INCREASE IN COST OF BUILDING MATERIALS ON CONSTRUCTION INDUSTRY IN NIGERIA

CHAPTER ONE

1.0       Introduction

The construction industry is a sector regarded as a catalyst for growth while the performance services as an indicator of the nation’s economy (Akanni, Oke, & Akpomiemie, 2014). It is supported by the association of construction players which encompass developers, contractors, building materials and equipment suppliers, manufacturers, financiers, regulators and others in the value chain.

Building materials have been playing an important role in the construction industry, they are those materials put together in erecting or constructing structures, no field of engineering is conceivable without their use (Akanni 2006; Udosen & Akanni 2010).

Building materials contribute immensely to the foundation to the materials for roofing and finishes while the building materials industry is an important contributor to the national economy of any nation as its output governs both role and quality construction work. The cost of building materials pose a significant threat to both the construction industry and people aspiring to own houses (Anosike 2009; Mekson, 2008; Mohammed, 2008; Njoku, 2007). Construction projects involve extensive use of materials. According to Obiegbu (2003) the construction industry is vulnerable to increase in prices of materials. Materials needed for erecting and completing construction works could amount to about 35 – 45% of the total project cost while in same other projects, the materials cost may be as high as 60%. Nwachukwu (2004) further explained that in most capital projects, materials account for more than 50% of their production cost. Material resource are thus the heart and life wire of any construction system. This simply means that increase in the cost of materials will affect the total cost of construction and subsequently housing supply in no small measures. Central Bank of Nigeria (CBN) (2002) stressed that increment/inflation is a social malady as well as a pervasive economic process whose effects are felt, to some degree by every citizen and in all sectors of the economy.

Increment is thus felt in the construction sector of the economy by the increase in construction material prices. Kaming et al (1997) stated that increase in cost of material is the major cause of construction cost overrun in Nigeria. Wahab (1985) further established that the prices of building materials in Nigeria have increased steadily over the years and this increment trend has led to higher construction costs. These frequent increase give rise to cost overrun, claims, housing supply shortage leading to high cost of urban housing accommodation, construction cost estimate losing usefulness within short periods, difficulty in forecasting and planning, and frequent contract price variations, all of which often leads to project abandonment (Nwuba, 2004; Akudusola, 2007).

In a similar view, Onashile (2008) submitted that the Nigeria construction industry has been going through a very trying period and that project that have help in uplifting the standard of living have either been abandoned or did not take off at all due to lack of funds and rising cost of construction materials. Construction costs within a preceding year can move up to about 30%.

1.1              Statement of the Problem

Increase in material cost causes serious problem to contractors. Oyediran (2006) observed that the rate of increase can cause serious problems in the economic accruals or rate of return to contractors for works undertaken, thus loss of profit. In the traditional procurement method, firm price contracts, where the contractor is paid in arrears. Inflationary forces render submitted bids unrealistic, this has made contractors, quantity surveyors more aware of the need to price inflationary risk at the pre-contract stage.

Ashworth (1983) opines that inflation can have an important effect upon the financial consequences of alternatives design solutions. The calculation of cost-in-use of alternative design solutions is often done without considering the impact of inflation on construction material prices. In order to factor inflation risk into pre-contract investment analysis, the appraiser thus requires an understanding of the relationship between inflation and construction materials prices.

Globalization, high returns on investment is no doubt attracting investors to Nigeria. These investors require adequate inflation forecasting techniques using the best, realistic information available at the time of the project cost planning and estimating process. However, with the ravaging effects of persistent price increases in Nigeria, some of these investors are also discouraged from investing in the construction sector. Idoro and Jolaiya (2010) affirmed that many projects were not completed on time due to the cost of materials which have been on the increase. Besides timely completion, high prices of building materials form a crucial constraint to improving housing conditions in the low-income earning countries, Nigeria inclusive.

1.2              Research Questions

a.       What are the rate of average increase in  cost of building material in Nigeria?

b.      What are the major causes of high cost of building materials in Nigeria?

c.       What are the effects of increase in the cost of building materials on construction industry in Nigeria?

d.      What are the probable solutions to the increase cost of building materials in Nigeria?

1.3              Aim and Objectives

The aim of this study is to determine the effect of increase in cost of building materials on construction industry in Nigeria with the view of reducing the effect of building material cost on construction industry.

1.4              Objectives of the Study

a.       To determine the average increase in  cost of building material in Nigeria

b.      To determine the causes of high cost of building materials in Nigeria?

c.       To examine the effects of increase in the cost of building materials on construction industry in Nigeria?

d.      To probable solutions to the increase cost of building materials in Nigeria?

1.4       Hypothesis

H₀:       Increase in cost of building materials has no effect on construction output

H₁:       Increase in cost of building materials has effect on construction output

1.5       Significance of Study

Findings from this study will educate the general public on the market cost of building materials in Nigeria and its sustainable effect on construction industry in Nigeria.

The result of this study will sensitize the policy makers and the government on the need to make and implement policies that will reduce the cost of building materials in Nigeria.

This research also serve as a resource base to other scholars and researchers interested in carrying out further research in this field, subsequently if applied will go to an extent to provide new explanation to the topic.

1.6       Scope of the Study

This study on the effect of increase in cost of building materials on construction industry in Nigeria will cover the effect, and factors responsible for increase in price of building materials on construction industry focusing on how it influenced the provision of affordable housing for the Nigerian populace. The study considers those materials which are the major cost drivers in building construction, namely; cement, reinforcement bars, granites (coarse aggregate) sharp sand (fine aggregate) sandcrete blocks, long span aluminium roofing sheet, emulsion paint.

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