Rising Oil Prices Could Drive Building Material Costs Up by 20%, Contractors Warn

By Dror Nir Kastel, Nadlan Center

According to an economic review by the Israel Builders Association, the Central Bureau of Statistics’ March Construction Input Price Index has not yet reflected the impact of rising oil prices caused by the war on building material costs, which are expected to surge. The association also estimates that 2026 could see an increase in construction starts in the urban renewal sector.

The Israel Builders Association estimates that the jump in oil prices caused by the war with Iran is expected to have a dramatic impact on the prices of building materials, and as a result, on the Construction Cost Index. This emerges from a periodic economic review published last week by the Israel Builders Association.

According to the review, the recently published CBS indices for March 2026 have not yet reflected the impact of the jump in oil prices, which gradually rose to around $100 per barrel in the middle of the month. The association estimates that the dramatic increase in global crude oil prices due to the war with Iran is expected to affect construction costs in the building industry. “An examination of the impact of oil prices on the indices over the past decade points to the possibility of a 1.4%-1.8% increase in the residential construction and road paving input indices due to rising oil prices,” the review stated.

The association added that official notices of price increases in construction inputs, including concrete, iron, asphalt, and various products and services, had been sent by several companies, citing a significant rise in the cost of raw materials such as cement, bitumen, and other production inputs. The updates are expected to take effect in April 2026, with price increases generally ranging from 10% to more than 20%.

“The impact of oil prices on asphalt and iron prices can be seen in the CBS indices over the past decade. According to the estimate, the impact this time will likely be even more dramatic due to the scale of the oil price increase, 60%, over such a short period, combined with additional effects of the war on logistics and global trade.”

According to the review, which is consistent with CBS data, figures for the last four quarters of 2025 indicate construction starts of approximately 80,000 housing units, about 20% higher than the average level in 2021-2024. In light of the updates made by the CBS in February, this represents more than 85,000 housing units, meaning 2025 is expected to be a record year for construction starts. At the same time, there was a decline in construction starts in urban renewal, with the share of urban renewal construction falling over the last four quarters from 25% to just 18%.

However, the association estimates that there may be an increase in urban renewal construction starts in 2026 and beyond, due to the high number of permits reported by the Urban Renewal Authority in 2024: 15,000 for Tama 38 and a similar number for Pinui-Binui projects, meaning approximately 30,000 permits in total.

Regarding construction completions, the association noted that completions in the fourth quarter of 2025 were 6.4% higher than in the previous quarter and 7.7% higher than in the corresponding quarter the previous year. In 2025, construction was completed on approximately 60,000 housing units, 10% more than in 2024. Taking into account that around 5,000 housing units will be demolished, the net supply of homes available for occupancy in 2025 will stand at only about 55,000 units.

The association also noted that construction completion volumes are 5,000 to 10,000 housing units lower than would have been expected based on construction starts from two to three years earlier. As a result, the volume of active construction continues to grow, reaching 207,000 housing units at the end of 2025. The number of homes under active construction stood at 203,000 at the end of the third quarter of 2025 and remains on a significant upward trend.

It was further noted that the decline in the labor force since the beginning of the Swords of Iron War has caused delays in completing projects, and the average construction time per housing unit lengthened by half a year to about 38 months in 2024 and even 39 months in the first quarter of 2025. During 2025, construction times began to decline moderately. Still, data for the fourth quarter of 2025 again point to an increase in this figure, suggesting that the return to the pre-war construction timeframe of around 33 months will be slower than expected, despite the high number of permits.