let’s talk: CONSTRUCTION IN 2021
We have had TONS of renovations going on this year – between two full makeovers in NY and our own home in PA – we are REALLY doing it this year. My aunt, who is also in the real estate industry, asked me if we have been affected by the uptick in material and construction costs this year. To be honest, I am sure we have been, but luckily not to astronomically noticeable amount, from a material standpoint. Where we have really been impacted is by the ability to get the work done. It is HARD to find a good contractor right now. So let’s talk about how 2021 is affecting construction.
So, as we do, let’s talk Real Estate, let’s talk THE COST OF CONSTRUCTION IN 2021…
Here are some stats
In 2021 alone, the cost of construction materials have risen on average between 4% – 6%. That may not seem like a lot on a small scale, but if you are doing bigger project, 4%-6% can really add up.
The surge in lumber prices in the past year has added $35,872 to the price of an average new single-family home and $12,966 to the market value of an average new multifamily home, according to the NAHB.
New lot supply is down 20% from a year ago, according to Zonda.
Lumber prices are up 67% up this year, and up 340% when compared to this time last year. Those added costs affect framing, cabinets, flooring, trim, doors and decorative beams.
Price of drywall also has increased, up 7% from last year.
Steel mill products are up 181% year over year.
The cost of copper has increased 27% this year.
The cost of land is up 11% year over year.
Why is this happening?
#1 People spent a ton of time at home over the past 12+ months. Because they were constantly in their homes, they wanted to fix them up. So renovations and remodels brought in a ton of demand.
#2 This crazy housing market. As people abandoned the cities for the suburbs, the demand for housing went up while the supply went way down. When there was little to no supply, people resorted to buying lots and going the new construction route.
Between the remodels and the new construction projects, the demand for construction materials sky rocketed. As if that alone would not hurt demand, we were also facing the issue that there were months on end in 2020 where production lines and warehouses were down and not producing materials at all. While most things are open back up by now, we are still playing catch up.
Outside of material costs, labor costs also increased. With such high demand for new construction and renovation, it seemed as though there were not enough contractors to go around. Finding a good contractor in a normal market is hard, finding one in this market is almost next to impossible. You have to know someone who knows someone to get a decent contractor these days.
So is there any end in sight for this craziness?
Well we should talk about this in three silos…
As far as housing demand…there is not an end in sight right now. There was a housing shortage before the pandemic, and this past year has only made this exponentially worse. Buyers are being stretched beyond their means, buying homes sight unseen and being forced to offer $50k-$150k over ask in some scenarios.
In terms of material costs… lobbyists are currently asking the Biden Administration to reduce the 9% tariff on Canadian lumber currently in place. They are also asking to assemble a summit focused on lumber and building material supply chain to help identify and solve the issues currently in play during this period of high demand and low supply.
In terms of labor costs… I think these are going to continue to be high. Contractors are in demand, period. Good contractors are hard to come by. And, outside of us as the consumers, contractors/builders themselves are struggling to get people to work. With such a limited workforce, projects are taking longer to complete.
Have you taken on any renovations this year? How have you been affected by the increase in costs of materials and labor?