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Arianne Cohen: Worsening the housing shortage, construction costs keep rising

By Arianne Cohen, Rate.com on

Published in Business News

These days, most of your favorite mid-market purchases come cheap: laptops, televisions, cars, housecleaning, home exercise and sanity are all at bargain-basement prices, after inflation, compared to decades past. (Thanks, Roomba, obefitness.com and generic Prozac!) But not home construction and remodeling. The same home construction project with an eyebrow-raising price tag a decade ago now costs the blood of your first born.

According to the National Association of Home Builders, the average single-family home cost $222,511 to build in 2009 ($82 per square foot), and $296,652 in 2019 ($114 per square foot), which is a 15% hike after inflation. If you want to own your home, you can't avoid these numbers by simply buying an old home: New construction prices tend to boost the price tags of nearby older homes.

"In all my years in the business, I've never seen prices go down," says Gregg Cantor, president and CEO of San Diego build and remodel company Murray Lampert, who has been a contractor for 37 years.

How is that even possible? Shouldn't industry innovation drive prices down? A walk through the process of building a home illustrates the many reasons that efficiencies have passed by home construction.

First comes the permitting process, which is, at best, a dumpster fire of inefficiency and cash. Bigger projects often involve a fleet of paid experts — architects, engineers, staffers from a construction company or developer, permit expeditors, surveyors, lawyers — whose fees, along with permit costs, can consume 5-30% of a budget. "Towns need to control how much growth they can have, to make sure that the municipality can handle that growth with things like schools, water and infrastructure," says Michael Beaver, managing director of business advisory firm Conway MacKenzie/Riveron. "So the municipalities slow permitting."

Yes, yes they do. This journalist entered the permitting process for a backyard tiny home in Portland, Ore., with a newborn baby in tow, and received a permit in August 2020. My daughter is 4.5 years old. No, putting my adorable 12-month-old in a Gimme a Permit onesie did not help.

 

Municipalities also help inflate the cost of the next phase: materials purchases. Cantor says that California's green building codes have upped his prices. "We're using better, more-efficient products with less of a carbon footprint."

Meanwhile, many of the supplies themselves have slowly grown more expensive due to a mix of labor costs, raw material prices and tariffs. "We've seen lumber, concrete, asphalt, everything tick up," says Beaver.

The pandemic has compounded matters with shortages. Some lumber prices have roughly doubled this year. "Everyone is just clamoring for all the metal that they can get," says Todd Miller, president of Isaiah Industries, an Ohio-based residential roofing manufacturer. "We're having to buy metal 12-14 weeks out, and even then it's often delayed by several weeks." Some mill closures this spring created backups; current fears that prices will increase further are leading some to hoard, says Miller. Contractors eye this situation and, quite reasonably, pad their bids a bit — which means sticker shock for you.

The cost of materials, though, isn't the primary culprit. Miller says that 20 years ago, materials typically made up 60-70% of a bid on an installed roof. "Today they're more like 30-35%, and one reason is that the cost of labor has gone up so dramatically."

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