Material Costs Are Up In New Construction - What Exactly Is More Expensive?

income & expenses market updates new build new construction real estate market Jan 12, 2022

Homebuilders both in and out of the build-to-rent industry have been hit hard by skyrocketing material costs over the last couple of years. The most obvious increases have been in things like lumber and labor costs. Here's what we've personally seen as we've chugged along in our real estate developments.

Materials are going up and Sherida had some info hinting that it's not just lumber costs that are increasing.

What are you seeing? 

Sherida Zenger: So an ING article back in August had said, 

"it will take at least until the summer of 2022 before we expect the price of some building materials, notably concrete, bricks, and cement to drop." 

What Material Cost Increases Are We Seeing?

We're experiencing this across the board in multiple supplies.

I know lumber was the big thing. I know we had the concrete, cause it was the fly Ash that they were having a hard time getting. But I mean, bricks, cement, I know that pipe was still a big thing. My husband does excavation and pipe in order to do a sewer pipe. It was it's on the rise and anytime they can buy it, they buy as much as they can.  

Steve Olson: I had been hearing too. We all know oil prices are way up to the pipe, shingles. Many other products are petroleum petroleum-based products. So when you see that your car is more expensive to fill. It's also more expensive to put that pipe in your house to put those shingles on your, on your roof. 

Right? Steel is way up to, we should check steel futures on this as well, but think of all the steel that goes into your wiring. Your electrical parts, your appliances, your H vac, especially, right? All of those things are made out of various steel products and, and that's, that's why this sticker shock thing is coming across the, across the board prices are way up, Chase and Sherida. 

However, from our point of view, there's an even larger culprit here than the materials, and that's the labor. What do you think about that?  

Sherida Zenger: It's hard to keep people on the job, you know, everyone's coming to post to other people off of job sites. I know up in Idaho, we'd experienced that with people coming, you know, to take a whole crew, and midway through a whole crew was gone. 

There was someone recently, and I don't know if it was in a conversation that we were all having, but there were two builders that were building side by side of each other here in Utah. And it was funny that one of the projects was cruising along and the other one was kind of going slow. The one that was going slow. 

They walked over, had a few conversations with the guys next door. And next thing you know, other people are watching this next thing. They knew that the whole crew went over to the other house. And now that another house is like light years ahead of, you know, the one, the other one, but it was all because they paid him. 

I'm sure. 50 cents a dollar more an hour. I don't, I don't know what it is. Yeah. But yeah, it's, it's a huge problem. I know my husband's struggles with it. I know our builders struggle with it, you know, trying to keep good employees. It's tough.  

Chase Leavitt: We talked about how popular build-to-rent is right now. 

It's not just built for rent it's new construction people want to get in homes in general. So things are booming right now. And so, yeah, there are definitely labor shortages that are really just causing issues. 

Steve Olson: Well, you know, the builder we work with, in Idaho, right. We, we know we did a whole bunch of fixed bid contracts. 

Clients closed half-open construction loans. Construction is in the process of a builder. Can't go back and change pricing at that point, even though it's jumped all over the map, they're going to have millions in late fees in, in just Idaho alone. Yeah. I mean, getting this a little bit wrong. Is millions and millions of dollars. 

So yeah, nobody wants to commit to anything that's more than a few months out. And does this labor, especially, it's a little bit more of a micro issue, but right now on my street where I live, there are two houses under construction, just a few doors down from me.

How Rising Costs Of Materials Have Affected Our Personal Projects

I have a construction project going in my backyard. 

Two little. Yeah. It's like a pool shed. One holds pool equipment. One holds a bath. And we had on our plans to brick these exteriors. And the problem is, as you guys know if you have us if you're a homeowner and you have a small job right now, good luck. See you later. No one's showing up, to do your small job. 

So you get an alert. Or you get a, write a check. So my wife has kind of running the project and she basically gave him the, what is your show up today? Price to the brick contractor. And they, they throw out a number. She said I'll see you soon. And they showed up and we had their attention and we paid for it. 

And so one of my neighbors is generally in his own house and he and this other house have had like 10 pallets of brick sitting out on their front yard for months. And he comes up to me. How do you get brick guys at your house? Like, I know that I'm using the same sub as the house, up the street from me and they're not even, they don't even have scaffolding set up. 

I know I'm months more out because they haven't even started. And I'm at least second year. Right. And I was like, you got to pay...

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