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Business Observer Thursday, Jun. 3, 2021 1 month ago

From home improvement to home building, shortages causing major delays — and cancellations — for builders and contractors

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Rising costs and material shortages put the construction and homebuilding industries in peril — while the economy wobbles.
by: Louis Llovio Tampa Bay Editor

When Rafael Jose Simón walked out of the Home Depot on Florida Avenue in Tampa last week, his cart was loaded with supplies.

There were window frames and paint and a couple pieces of plywood.

This is good, he says. It means there’s work. And that hasn’t always been the case lately for the owner of Simón Construction, an independent home remodeler.

“Prices are going up. They’ve tripled,” he says. “When we price out a job, it’s a lot higher and that’s because of the materials. Not the labor.”

What Simón sees is exactly the same thing contractors, builders and manufacturers across Florida — and the country — are seeing. Prices for materials, particularly lumber, have been continually rising while simultaneously becoming scarce. That's led to a perfect storm of obstacles that, in turn, has led to high anxiety among builders and contractors. The fear? Continually rising prices and material and labor shortages will crater their industry, just as they are counting on an economic rebound.

The Associated General Contractors of America reported in May that prices for materials used in the construction industry rose 19.7% from April 2020 to April 2021. The trade group called the rising prices the “largest increase in the 35-year history of the” reports.

These cost hikes have led to delays and cancellations, in addition to fears that entire building projects could come to a halt. One startling example: it used to take, on average, eight months to build a home in Florida, says Florida Home Builders Association CEO Rusty Payton. Today it takes 15 to 18 months.

Reasons for higher material prices include labor shortages, transportation and gas prices, tariffs and more. There have also been problems caused by weather and unrest in the economy.

And just like nearly every other industry, COVID-19 lockdowns have played a role. That includes plant and mill closures, while people being home sparked interest in home remodeling projects.

Now, for consumers, the rising costs of projects is making some of them take a second look to see if what they’d envisioned is feasible.

“Clients are telling me, ‘I can’t get that job done,’” says Simón, who’s had to raise prices to break even. “I tell you what, consider the costs for the materials, the gas, the employees. How am I supposed to make a living?”

What's the opposite of timber?

While many material prices are spiking, the biggest jump is in lumber.

According to the Associated General Contractors of America, lumber prices jumped 85.7% between April 2020 and 2021.

That, coupled with shortages, is a huge blow for many builders and smaller contractors who depend on wood for most of their work.

Payton says the problem has gotten so bad, that suppliers are giving builders estimates that are only good for five hours.  

“Not five days. Not five weeks. Five hours,” he says.

Robert Bardon, a professor of forestry and environmental resources at North Carolina State University, says the spike in prices is due to a number of factors, including Canadian lumber tariffs and supply chain issues.

He says when the pandemic began, demand for lumber was low. But a surge in the number of people wanting to work on remodeling projects while in lockdown, coupled with new home purchases, caused a demand spike.

As that demand grew, the lumber industry was dealing with the real-world consequences of the pandemic. This meant cutting back on hours to meet government regulations and altering operations. That, says Bardon, led to “slowed production.”

Transportation problems and disruptions to rail are also making it difficult for lumber to reach dealers selling it.

But it’s not just the construction and home repair industry seeing the effects of the lumber shortage.

A pallet shortage is hitting farmers so hard that last month the United Fresh Produce Association warned that it could impact “the availability of produce to consumers.”

Prominent Plant City farmer Gary Wishnatzki, owner of Wish Farms, in a recent interview to talk about the company's new headquarters, says fears of not having enough pallets to transport his pickings keeps him up at night.

'The more complicated answer is that various delays at different times with different materials over the past 18 months has caused disruption in our ability to produce and stay on our production schedules.' Jeff Jackson, president and CEO, PGT Innovations

As lumber prices —and scarcity — have increased, so have the prices of other materials.

Products made in steel mills rose 67% from April 2020 to April this year and brass mill shapes rose 49%, according to AGC data. The group also reported cost increases in plastic construction products because of shortages of PVC pipes, vinyl siding and resins used in paints and adhesives.

Payton says builders, in an effort to rein in expenses, have begun to include escalation clauses in contracts to cover the rising cost of materials. He says a contract generally has language that allows for additional costs if the price of materials exceed a certain amount. It rarely happens, but the language is there to protect a builder.

“Now what you’re seeing happen are contracts that say, ‘We’re going to build it at cost plus x’ and there’s no top dollar value indicated,” Payton says. “For some people it’s not a problem, for many people it is.”

However, this, he says, is creating a creeping reluctance among lenders who are wary of lending on that basis.

Cause havoc

While pricing is causing major problems for people working in all facets of construction, shortages are every bit as damaging.

One major concern is the bottlenecks created when supplies are scarce. A building project, say industry officials, is a coordinated endeavor — you can’t put in the drywall until the wiring is complete.

What’s happening, then, is supply delays create a domino effect that leads to projects coming to a standstill, costing people time and money. 

So when will the situation will improve?

That’s difficult to answer because even as pandemic restrictions begin to lift, manufacturers overseas are already struggling with increased demand.

Many of the parts and components used by builders and plumbers are manufactured overseas. And even when manufacturers are able to produce parts, there are issues in the U.S. that could continue to cause backlogs once products are shipped.

Will the ports have enough employees to unload ships? Will there be enough drivers to deliver the products to suppliers and builders? And once supplies are in, how long will it take to for American manufacturers to produce the products they need to get to the builders?

Those are questions, industry officials and experts say, that can only be answered with time.

Trying to keep up

One of those manufacturers is Venice-based PGT Innovations, a publicly traded maker of impact-resistant windows and doors. The firm reported $993.5 million in revenue over the past 12 months. 

Jeff Jackson, president and CEO, says the “short answer is that the slowdown in materials has greatly affected PGTI.”

“The more complicated answer is that various delays at different times with different materials over the past 18 months has caused disruption in our ability to produce and stay on our production schedules,”says Jackson

Like everyone else in the industry, PGT is dealing with price increases, weather-related shutdowns and a shortage of supplies. Those issues, along with growing demand and a shortage of employees, have led “our backlog to grow to record levels.”

This, he says, is all happening as the company has seen a significant increase in the demand for construction, repair and remodeling in the past 18 months.

Jackson says PGT is trying to work its way through the problem by partnering with other suppliers inside and outside the U.S., and that it is no longer relying on a single source for its materials. In addition, PGT is has increased trucking and distribution routes and “are willing to pick up materials if needed.”

The company has also taken steps to address staffing issues. It has increased its minimum starting wage to $15 an hour and is offering sign-up bonuses of up to $2,000. That’s in addition to referral bonuses for existing employees and retention bonuses.

“Our customers are used to quality products delivered on time and in full with minimal back orders,” Jackson says. “This value proposition has been very challenging given all the obstacles we face.”

What's next?

Back outside the Home Depot in Tampa, Ignacio Rousseaux and his father Cecilio load up their black Ford F-150 pick-up with the sheets of drywall they just bought.

They aren’t builders or manufacturers with huge contracts. They are handymen hired to do minor jobs in people’s homes. It’s their livelihood and they feel the price crunch every bit as much as anybody.

Ignacio Rousseaux is also one among many in the industry trying to gauge the long-term effects of what is happening now. Delays cost contractors who have bills and employees to pay. Some may be able to weather it better than others — but there are real concerns about who will survive.

“This is really hurting us,” Ignacio Rousseaux says. “Think about it, my customers don’t have the money to buy the supplies, much less to pay me to do the work.”

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