Why are construction costs rising?
by Dennis Walker
There is a direct correlation to the number of homes being built in an area and the cost of such homes. For most supply and demand chains, the more products you produce the cheaper you can make each product. Many people feel that the housing industry widens their profit margins during a high building trend, while the opposite is actually true.
When we look at the materials themselves, as the national construction averages continue to increase, the cost of those building materials also increase. Many of the larger home builders and names we recognize and trust actually purchase their products way in advance and get contract pricing on lumber, concrete and all the other parts and pieces of a house, before they even know they are going to be building your next home. And before blowing the whistle on those that produce the materials, it becomes a labor issue. There are only so many people that cut trees down, so many people that can operate in a sawmill, truck drivers to move raw and finished materials from one place to the next, quarries that get all the materials for concrete. The list goes on and on, but labor availability is at the heart of it.
The bigger direct challenge of home builders in a busy market is their labor. Currently in Flagler County, we are constructing record numbers of homes since the fall of 2008. With construction being such a labor intensive product and less and less of our workforce is trained or even willing to do such work, they get to pick and choose who they work for and what price they will charge. Subcontractors play a large role in this market, bidding their services from one company to the next and they work for the highest bidder. Subcontractor’s demand for plumbers, electricians, drywallers, painters and block guys are great enough that they are in a position to tell builders no. I promise that in today’s market, Hungry Roofers aren’t going hungry. The builders end up getting caught in the middle trying to provide you with the most value for your dollar, while also having to build your house in a timely expected manner. As the saying goes, “CHEAP, GOOD, and FAST… you can only pick two.
I have personally pondered much time trying to find a way that could possibly change the supply and demand chain that wreaks havoc on this industry. Regionally, construction suited workers can relocate to other parts of the country, as happened in 2003-2008, but they end up relocating for the higher priced jobs and the steady work flow. Prices don’t end up dropping on labor until the supply of workers increases beyond the demand of the builders. We don’t want to see that happen, as that will be the result of stalled building market and a possible downturn. Slow and steady will always win the race.
I am Dennis Walker, Realtor in Flagler County Florida. If you have more questions or want to get more details, you can always call me at 386-262-4064.