As supply chain hurdles continue to strain homebuilders, industry experts and stakeholders say that conditions have worsened as pre-existing and new challenges have contributed to longer build times and higher prices for new homes.
“Construction cycle times are up anywhere from four to 10 weeks and in some cases longer, particularly for the higher-end homes that are using a lot of custom materials that have to be transported,” says Rob Dietz, chief economist at the National Association of Homebuilders (NAHB).
For nearly three years, builders have struggled to keep up with demand as availability and surging costs for building materials have ultimately produced higher prices for newly-built homes.
There was a time when lumber costs presented the biggest challenges for builders. However, according to Dietz, the cost for most items, including appliances and structural materials, have climbed over the past 13 months.
Building materials prices increased 20.3% year over year and have risen 28.7% since January 2020, according to the latest Producer Price Index (PPI) report released by the Bureau of Labor Statistics.
Dietz says that the price of structural lumber has jumped more than 40% over the past 13 months. According to recent NAHB data, the steep increase in lumber prices has added more than $18,600 to the price of a newly built home.
While that is a few thousand dollars lower than last year, it underscores a more significant issue that has yet to be addressed: Supply chain hurdles are a considerable problem for the housing market.
Builders Burdened
From a real estate perspective, experts from the National Association of REALTORS® (NAR) predict that home construction will rise this year as demand remains strong for virtually any home that enters the market.
“The costs and delays are rising because of the broader inflation and supply chain disruptions,” says Lawrence Yun, NAR’s chief economist. “Still, there are profits to be made. Even adding on extra costs to the final price, there are consumers willing to buy.”
While builders agree that the demand is present, they also say that it’s tough to sell homes that aren’t there.
Boise, Idaho-based homebuilder Steve Martinez of Tradewinds General Contracting says he doesn’t see the light at the end of the tunnel as supply chain issues continue to bog down production for his business.
“It just continues to get worse,” he says. “The frustrating part is that this is really an American-made problem.”
While delayed delivery times for building materials and appliances have occurred regularly in the past two years, Martinez notes that his suppliers from abroad have been able to deliver goods sooner than many of his domestic vendors.
“We’ve got three companies that we use for appliances as far as brands,” Martinez says. “The shortest time frame for one of those brands is six to eight months to get a product if I order it today. The other brand is eight to 12 months, and the last brand, an American-made brand, is 12-15 months.
“I’ve resigned myself to call this the delay of the day,” Martinez adds. “You just fill in the blank with any product…it’s the most random thing.”
Overall housing starts slipped by 4.1% in January to a seasonally adjusted annual rate of 1.64 million units, according to recent reports from the U.S. Department of Housing and Urban Development (HUD) and the U.S. Census Bureau.
HUD noted that 785,000 single-family homes were under construction in January—up 26.8% year-over-year—while there were 758,000 multifamily units under construction—a 14% gain.
Martinez says he has a two-and-a-half-year backlog of signed contracts that he and his team can’t get through until supply chain constraints are mitigated.
Greg Winn, owner of GH Winn Builders in New Hampshire, expressed similar frustrations, adding that he has had to limit the amount of work taken on because of the lack of available building materials.
“In 35 years of being self-employed, I’ve never seen it like this before,” he says. “We’ve had to stop and halt progress on some jobs because we just can’t get the product that I’m used to working with, and I’m hesitant to venture off and try new products.”
Like Martinez, Winn’s business has also accrued an extensive backlog, except it has hit the three-year mark, which he says he is struggling to mitigate while supply bottlenecks continue to squeeze the sector.
“I don’t see us snapping out of it anytime soon, and I just see 2022 being not a lot different from 2021,” Winn says.
Labor Shortages
In 2021, NAR released its “Housing Is Critical Infrastructure: Social and Economic Benefits of Building More Housing” report claiming that the housing market needed 5.5 to 6.8 million housing units to close the past decade of underbuilding.
While that’s a tall order by any standard, it’s also an impossible task without enough workers in the construction field, according to experts from the Home Builders Institute (HBI).
“You can throw a lot of money at infrastructure and new housing, but if you don’t have people to put it up, then you’re not going to solve the problem,” says HBI CEO Ed Brady. “It’s simple math; if you don’t have enough people entering the industry and you have aging in the population within the industry, the calculus doesn’t look good.”
Despite construction adding 60,000 jobs in February, recent reports from the Bureau of Labor Statistics (BLS) indicate that the sector is short more than 300,000 workers.
However, HBI has said that the need is far greater when accounting for retirements, pandemic-related exits from the industry and the standing order for millions of new homes for sale.
“The labor shortage is a chronic problem,” Brady says. “It’s a chronic problem because we have gone decades without investing in the manual labor, skilled workforce, so we’ve got a lot of catching up to do.”
The organization has maintained that investing in education, nurturing new workers from an early age, and encouraging more interest in these trades is the only long-term solution to the construction industry’s dire need for more skilled workers.
Based on a recent HBI report, the industry would need to add 740,000 workers per year for the next three years to keep up with demand at the current pace.
“That’s an overwhelming number, and we’ve got to really look at it from different angles, but it’s not something that we are going to take care of in a year or 18 months or even two years,” Brady says.
Outward Influences
While supply chain constraints have played a significant role in the plight of home builders, experts say demand shifts during the pandemic have exacerbated the situation.
“When we look at how consumer activity has evolved over the pandemic, particularly in the period following the stimulus payments, those were being broadly targeted to middle-income American households, but not discriminating about whether the pandemic negatively impacted their incomes,” says Sam Chandan, a professor of finance and director of Stern Real Estate at New York University.
The pivot in consumption activity away from services to durable goods helped drive investment in home remodeling and housing demand overall, according to Chandan.
As labor and building material scarcity persists in the market, he says builders will continue struggling to meet the growing chasm between housing demand and available homes for sale.
“I would not expect a significant easing of constraints, and in part that does reflect the experience of the individual participant of the market,” Chandan says. “We know that homebuilding activity is up, so even if we are experiencing incremental improvements in supply, there are definitely individual participants that will feel like that because we’ve got more activity.
“I expect for the foreseeable future the market will feel slight constraint and that will mean higher costs across the board, as well as for homebuyers, and ultimately act as a drag on the supply of new houses,” he adds.
The last time the market has seen similar disruptions to global supply chains was during the Jimmy Carter administration (1977-1981), according to Chandan.
“In our adult lifetimes, we’ve not seen disruptions like this in the global supply chain,” he says.
During the late 1970s and early ’80s, the country reached double-digit “hyperinflation” sparked by an oil crisis and wartime spending.
Fast forward to current conditions, and the U.S. inflation hit a four-decade high of 7.8% in February, according to BLS data, which shows that energy, food and shelter prices jumped to record levels amid the Russian Invasion of Ukraine.
As existing supply chain issues in the housing sector persist, Dietz said that the geopolitical events in recent weeks could add “another complicating factor” to the challenges that builders face.
“We’ve been thinking about the impacts that the Ukrainian situation could have, and it looks like right now, the impacts are more indirect,” he says.
For example, the price of oil is going up globally, which Dietz says could impact the sector from deliveries to the production of building materials.
As lawmakers work to mitigate some of the ripples that the geopolitical situation has produced in recent weeks, Martinez raised concerns that efforts to reduce domestic challenges in construction may fall by the wayside.
“I’m worried that that has taken our eye off the ball, and this is going to dominate the administration’s every thought,” Martinez says.
Jordan Grice is RISMedia’s associate online editor. Email him your real estate news to jgrice@rismedia.com.
