Material shortages will almost certainly lead to development cost increases and project delays in the multifamily sector as rapidly rising prices continue to trouble the construction industry.
A new survey from the National Multifamily Housing Council shows that builders are increasingly concerned about supply constraints and increasing costs, with 40% of respondents citing price increases north of 20% for their most impacted materials. And those concerns are led, of course, by continuing stress surrounding the sky-high price of lumber which is “creating a serious impediment for apartment developers and construction firms,” NHMC vice president of research Caitlin Walter writes in a recent piece analyzing the data.
“Material shortages and cost increases will lead to development cost increases and potential project delays,” Walter said. “Builders and contractors can attempt to offset these issues by either substituting materials (if possible) or assuming higher costs for the materials in their budgets. However, longer term, these disruptions could challenge the already supply-constrained market and threaten to derail housing affordability efforts. New units need to be built at a variety of price points, and cost increases only make building those units more difficult.”
NMHC data shows that overall, multifamily costs are rising, with lumber routinely cited by builders as one of the leaders in price increases. Lumber prices surpassed their prior high watermark (from 2018) by August of last year, and overall lumber had increased nearly 90% in price year-over-year by April 2021. Lumber prices have risen 34.3% since December alone.
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Industry leaders have begun pressuring the Biden Administration and members of Congress to intervene, and last week Commerce Department Secretary Gina Raimondo vowed to make lumber prices a priority.
But lumber isn’t the only material seeing price shocks. Steel and copper and brass mill spaces also began rapidly increasing in late 2020, with upticks of 67% and 49% year-over-year, respectively, and gypsum and ready-mixed concrete remain difficult to obtain, according to survey respondents.
“Pricing has increased since the pandemic began in March 2020, and the increases became more acute after the initial shutdown,” Walter said. “These increases can be traced to increases in demand for the products as well as supply chain issues. But it’s important to note that these numbers do not mean that inflation is here for good. Rather, the current issues may only persist in the short term. Until supply chain and demand pressures ease, prices will likely remain elevated.”