Costs, supply issues delay construction projects

Go outside and listen.

If you live in Cape Girardeau (or in a thousand other American communities for that matter), you might hear traffic, birds chirping or dogs barking, but chances are you won't hear the sounds of construction anyplace nearby.

A significant amount of residential and commercial construction projects have been delayed — or canceled altogether — because of multiple factors, such as the rising cost of construction materials, material shortages, and, in some areas, a shortage of construction manpower.

In a typical year, the United States needs to average about 1.5 million housing starts to accommodate population growth while making up for homes that are destroyed (by fires, floods, tornadoes, etc.) or voluntarily torn down. However, in the past 20 years, builders have only started an average of fewer than 1.3 million homes. The last time builders started more than 1.5 million homes was in 2006.

And although the U.S. economy expanded at a 6.4% annualized rate during the first quarter of 2021, investment in nonresidential structures declined at a 4.8% rate during the same period, according to ABC, Associated Builders and Contractors.

Higher costs, fewer permits

Meanwhile, data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau indicate housing starts decreased 9.5% last month.

"The decline in single-family permits indicates that builders are slowing construction activity as costs rise," said Robert Dietz, chief economist with the National Association of Home Builders (NAHB) in on online statement last week.

"Higher costs and limited availability of building materials have now paused some projects," he said.

Permits for home construction also declined in April, down 3.8%, with the Midwest (including Missouri) leading the decline, down 9.9%, according to the NAHB, which said the number of single-family homes permitted but not started continued to rise last month to 131,000 units. That's 47% higher than a year ago.

The slowdown in home construction has caused a domino effect on home sales and home renovation projects. Potential homebuyers are discovering a smaller-than-normal inventory of homes on the market, especially in certain price ranges, and homes that are on the market are often selling faster than usual, and often well above list price.

The National Association of Realtors (NAR) reported Friday the median sale price for a house in the United States climbed to a record $341,600 in April, the highest median price since the association started tracking prices in 1999 and up a record 19% from where it was a year ago.

Meanwhile, the inventory of available homes was 21% lower in April compared to the same month in 2020, according to the NAR report.

Relocate or renovate?

Rather than moving, many homeowners are choosing to renovate and upgrade their existing homes. They are often being forced to delay their remodeling projects, however, because of rising material prices, high demand for project contractors and material shortages.

"Nearly all building materials are seeing price increases," said Jeramy Goehman of Ike Enterprises, a construction contracting firm in Cape Girardeau. "These price increases are happening almost weekly and it makes it impossible to lock in a bid to a customer for more than five days."

He said the lead times on windows, siding and other exterior wall coverings are impacting his job scheduling as well.

"We are told this is due to shopping complications related to the (COVID-19) virus," Goehman said. "We have heard of homeowners living in their homes with no siding, just waiting on it to be delivered and to get on an installer's list."

As owner of Unique Ambiance in Cape Girardeau, Cindy Buchheit has been working with contractors and overseeing remodeling projects for more than a dozen years. In that time, she said she has never experienced material delays similar to what she and her clients are dealing with now.

"Things like furniture were always six to eight weeks out for custom pieces, and if it was a stock thing, you could just take it off the furniture company's floor," she said. "Now, you're looking at not a matter of weeks, but months and sometimes it's seven to 12 months."

In some cases, she said, furniture manufacturers are dealing with a shortage of foam filling because of a supply chain issue related to petroleum. Other delays are reportedly occurring because furniture, appliances and other materials manufactured overseas are waiting to be unloaded from cargo ships.

"The other day, there were like 37 ships anchored offshore in California waiting to be unloaded," Buchheit related, and said she's been told by her suppliers there simply aren't enough trucks to offload the ships in a timely manner.

As a result, some projects that would have taken three or four months to complete are now stretching into seven or eight months, and sometimes longer.

Price predictions

As for prices for furniture, appliances, fixtures and other building materials, Buchheit said the prices she pays are going up just about every week.

"I've been working on one project for several months and the clients keep going back and forth about what they want," she said. "It seems every week that goes by the prices increase another 5 or 10%."

Will prices eventually come down? Goehman said he's hopeful.

"I haven't lost all hope that we'll see an end to this," he said. "I just hope it's an easy transition back down to original pricing and it doesn't hurt a lot of businesses along the path."

Buchheit said she thinks it's a "50-50" proposition, but if prices drop, she doesn't think its likely they'll completely return to what they were a year or so ago.

"It's kind of like gas," she said. "Now that we're at $2 and whatever cents a gallon, we're never going to see 99 cents again. It's just the way it is."

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