With the sharp decline in U.S. home production – currently at a 17-year low – builders were hoping to see a dip in construction costs.

No such luck.

A combination of soaring global demand and high energy prices has caused construction material prices to explode for both commercial and residential builders.

Construction costs have been increasing at more than twice the level of overall consumer prices, according to statistics from the Associated General Contractors of America.

And prices for many building components – including steel, roofing materials and concrete – have grown even faster.

"Costs are up most for products currently being used for nonresidential building and highway projects," said D'Ann Petersen, a business economist with the Federal Reserve Bank of Dallas. "Higher energy prices are pushing up production prices for many of these products.

"In addition, raw materials prices continue to rise."

For developers, the surge in pricing makes it hard to nail down the economics of a deal.

"Any quotes they give us have no more than a 30-day window," said Steve Chilton, senior director with commercial developer Opus West. "We can't get anyone to commit to longer dates.

"It's a very difficult time we are in with steel and concrete and all the metals," he said.

Steel prices for construction projects have jumped by more than 20 percent in the last year, said Karl F. Almstead, a vice president with Turner Construction Co. who tracks building costs.

Unlike previous cycles when increases in construction materials prices were temporary, that may not be the case this time, Mr. Almstead said.

"I believe this is sustained," he said. "I don't believe it is going to go down.

"We are in a world market now where the U.S prices are being much more influenced by the global economies than we ever have in the past."

Mr. Almstead said that China is spending almost 20 percent of its gross domestic product on building.

"Then you have places like Dubai in the Middle East where the construction is going up," he said. "They continue to build at an unprecedented speed."

Since many construction materials are made with petroleum products or require large amounts of energy to produce, the higher costs of oil and gas also have had a big impact.

And high fuel prices are affecting construction firms that use heavy, diesel-powered equipment.

"Commodity futures prices for things like copper keep prices high, not to mention petroleum prices for asphalt shingles and other petroleum-based items," said Dr. James Gaines, an economist with Texas A&M University's real estate center.

"Even labor costs may not be seeing that much contraction."

That's because there's a boom in public sector and commercial building – even though the housing market has seen a steep decline in starts in Texas.

"Contrary to popular belief, construction employment is actually up, not down, despite the dramatic falloff in residential construction," Dr. Gaines said.

Developers and builders say they try to pass on the higher construction costs to their customers.

"Fortunately, rents have been picking up on just about all product types," said Mr. Chilton, who recently started work on an Irving office building. "As long as we have sound market fundamentals, we are going to be all right."

Warehouse developers that have for years been fighting to increase rents also are dealing with higher expenses.

The average cost of constructing an industrial building in North Texas has grown from less than $20 per square foot 18 months ago to the mid-$20s today, said Rob Huthnance with ProLogis.

"The increase in construction costs should translate in the long run to an increase in rental rates," Mr. Huthnance said.

Homebuilders already face the most dismal sales market in a generation. And they are having a tough time getting their customers to pay for more expensive building materials.

Fortunately for residential builders, costs for lumber and gypsum products have fallen with the decline in home starts.

But rising costs in other areas have more than made up for those savings, builders say.

"I just got kicked in the head yesterday," said Donny Mack, a Denton County builder who is president of the Home Builders Association of Greater Dallas. "Thirty-year laminated shingles went up in price from $35 to $65 a square" or 100 square feet.

"You'd think with demand going down, price would follow it, but it doesn't seem to be doing that."