Where Do We Go From Here?
Many if not all multifamily developers would agree the most unstable issue in the industry is a shortage of construction materials. Steele, asphalt and lumber to be specific. The shortages have caused development costs to rise to unprecedented levels. It was inevitable. The closing of mills and factories early in the pandemic brought production of materials to a halt. This decreased overall supply while consumer demand rapidly increased.
Consumers were quarantined and anxious. Unsure the direction Covid-19 would go and having millions working from home concerns for comfort became a big issue. Bigger homes became important to families and renovations became a major coping mechanism. Lumber quickly disappeared from shelves, and factories have not been able to keep up with demand since. Construction firms quoted six weeks delivery times earlier in 2021 are now being quoted 18 weeks to arrive.
The closing of factories, mills and high demand have caused a volatile domino effect. The combination of these challenges created the “perfect” storm. The backlog in the production of materials have Builders seeking answers on how to offset these inflated costs. Who will absorb the additional expenses? Will the investors have to take a lower yield? Will the renters have to pay higher rental rates? The National Association of Home Builders did a study and found higher cost of lumber could increase the market value of a unit by $13,000k. Construction costs has always been a huge part of multifamily developments and inflation upwards of 140% is catastrophic to a project.
Pre-pandemic conversations on lumber in the media was far and few, plus boring. Today the conversation is a hot topic, memes flood social media but it’s definitely a serious matter. Knowing how to connect with contractors to order materials sooner or even secure the cost of labor will be key for developers. Especially since the labor market is still struggling to fill jobs amidst the significant unemployment but that is another article. Today, our world is a lot different than 18 months ago and predictions of going back to how it was, is no where in sight.
By: Quinn Newton