Worsening the housing shortage, construction costs keep rising

By Arianne Cohen - Rate.com

Construction continues on the Water Street Tampa development earlier this month in downtown Tampa, Florida.

Construction continues on the Water Street Tampa development earlier this month in downtown Tampa, Florida.

Tribune News Service

These days, most of your favorite mid-market purchases come cheap: laptops, televisions, cars, housecleaning, home exercise and sanity are all at bargain-basement prices, after inflation, compared to decades past. (Thanks, Roomba, obefitness.com and generic Prozac!) But not home construction and remodeling. The same home construction project with an eyebrow-raising price tag a decade ago now costs the blood of your first born.

According to the National Association of Home Builders, the average single-family home cost $222,511 to build in 2009 ($82 per square foot), and $296,652 in 2019 ($114 per square foot), which is a 15% hike after inflation. If you want to own your home, you can’t avoid these numbers by simply buying an old home: New construction prices tend to boost the price tags of nearby older homes.

“In all my years in the business, I’ve never seen prices go down,” says Gregg Cantor, president and CEO of San Diego build and remodel company Murray Lampert, who has been a contractor for 37 years.

How is that even possible? Shouldn’t industry innovation drive prices down? A walk through the process of building a home illustrates the many reasons that efficiencies have passed by home construction.

First comes the permitting process, which is, at best, a dumpster fire of inefficiency and cash. Bigger projects often involve a fleet of paid experts — architects, engineers, staffers from a construction company or developer, permit expeditors, surveyors, lawyers — whose fees, along with permit costs, can consume 5-30% of a budget. “Towns need to control how much growth they can have, to make sure that the municipality can handle that growth with things like schools, water and infrastructure,” says Michael Beaver, managing director of business advisory firm Conway MacKenzie/Riveron. “So the municipalities slow permitting.”

Yes, yes they do. This journalist entered the permitting process for a backyard tiny home in Portland, Ore., with a newborn baby in tow, and received a permit in August 2020. My daughter is 4.5 years old. No, putting my adorable 12-month-old in a Gimme a Permit onesie did not help.

Municipalities also help inflate the cost of the next phase: materials purchases. Cantor says that California’s green building codes have upped his prices. “We’re using better, more-efficient products with less of a carbon footprint.”

Meanwhile, many of the supplies themselves have slowly grown more expensive due to a mix of labor costs, raw material prices and tariffs. “We’ve seen lumber, concrete, asphalt, everything tick up,” says Beaver.

The pandemic has compounded matters with shortages. Some lumber prices have roughly doubled this year. “Everyone is just clamoring for all the metal that they can get,” says Todd Miller, president of Isaiah Industries, an Ohio-based residential roofing manufacturer. “We’re having to buy metal 12-14 weeks out, and even then it’s often delayed by several weeks.” Some mill closures this spring created backups; current fears that prices will increase further are leading some to hoard, says Miller. Contractors eye this situation and, quite reasonably, pad their bids a bit — which means sticker shock for you.

The cost of materials, though, isn’t the primary culprit. Miller says that 20 years ago, materials typically made up 60-70% of a bid on an installed roof. “Today they’re more like 30-35%, and one reason is that the cost of labor has gone up so dramatically.”

Two words: labor shortage. Construction workers and journeymen are in profound shortage in many markets. “It’s because we have trained our youth that going to college and getting a desk job is better than going outside and working,” says Beaver. “The population has been conditioned away from blue collar jobs.”

This leads to contractors paying a dollar or two more per hour to keep their workers from being hired away by the company down the street, which drives up your price tag. Overall, the construction-only costs of a single-family home have gone up 35% since 2005, according to the U.S. Census Bureau.

This is all compounded by demand, which varies widely by region. A recent Freddie Mac report found 29 states in a combined housing deficit of 3.3 million homes. Washington, D.C., leads the way, with a deficit equivalent to nearly 10% of its housing stock, while Oregon and California have deficits of nearly 9% and 6%. In booming regions, this results in more people wanting new homes than there are builders, which … there’s a theme here: raises prices.

This cluster jam of ever-rising home construction prices may lead you to ask the obvious question: Shouldn’t some innovative building process have emerged to sidestep these costs? Yes! It did! But, um, not here. The promise of prefabricated and modular and off-site constructed homes has never quite taken off in the U.S., though it has in Scandinavia, where it is considered dumb to pay people to assemble hundreds of components on site.

Blame American consumer preferences. We love the endless customization offered by workers on-site (“Hey, could you install a cool speaker right there?”), and falsely consider off-site construction to be lower quality. In reality, craftspeople do beautiful work in their own facilities where they don’t battle weather and subcontractor schedules.

American contractors are also not sold on prefabs. “It only pencils out in developments or multifamily projects,” says Cantor. “You can get the pre-manufactured panels, but then you still have to assemble and do interior walls. There’s some savings on the exterior, but not enough to make sense in a single-family residential situation. Hopefully someday it’ll get there.”

Hopefully. In the meantime, the pandemic marches on, and the jury is still out on where home construction prices will go post-pandemic. “Following any downturn, contractors are typically 12-18 months behind. Right now they’re living off of work that they bid previously,” says Beaver. A prediction: Prices will go up.

Construction continues on the Water Street Tampa development earlier this month in downtown Tampa, Florida.
https://www.limaohio.com/wp-content/uploads/sites/54/2020/10/web1_BIZ-TAMPA-BAY-REAL-ESTATE-COMMERCIAL-PT.jpgConstruction continues on the Water Street Tampa development earlier this month in downtown Tampa, Florida. Tribune News Service

By Arianne Cohen


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