The impact on the construction industry from the COVID-19 pandemic is likely to linger for some time.
For commercial projects as well as people looking to build or remodel homes, builders in the region say that means two major things: Expect higher costs and delays.
Faced with supply shortages and rising prices for materials like lumber — which has soared in the past year — some builders are simply delaying projects for months, in hopes that the supply chain will catch up and costs will decline.
The Monument Cos., a Richmond-based real estate developer, has faced delays on a 260-unit apartment complex development in Spotsylvania County because “we were not even going to be able to get the bath tubs,” said Tom Dickey, a partner in the company with Christopher Johnson.
“Pretty much everything across the board has gone up” in price, Dickey said. “We are definitely seeing the impact.”
A similar apartment project the company was planning in Norfolk has been put on hold because of costs and supply chain issues.
“We had originally planned to start work this fall, but we have decided to postpone it until the second quarter of 2022,” Dickey said of that Norfolk project. “The prices have gone up so much, but we hope it will start to return to normal.”
Dickey said it is difficult to say at this point whether the higher costs for construction will translate to higher rental costs for apartments.
“What it will do is lead to decreased future supply,” he said. “So if you have less product on the market, it will lead to higher rents as population continues to grow and you need more housing.”
The Monument Cos. isn’t the only developer and builder facing supply issues and delays.
KBS Inc., a major building construction management company in the Richmond region, also has seen some projects put on hold, said Will Paulette, a project manager for the company who oversees multiple retail, residential and historic renovation projects.
“We have had projects that developers have put on hold because of price increases,” Paulette said. “That has been one of our biggest challenges. Developers will put together a pro-forma — a document of the feasibility of the project. Now, they are looking at them, and the pricing has gone up 10 or 15 percent. The numbers just don’t make sense now, and they are hoping commodity prices will go down in the next couple of months.”
Home builders are pulling back on the number of projects simply to control costs until building material prices come down, said Danna Markland, CEO of the Home Building Association of Richmond.
“It is a difficult time to be building a home,” Markland said. “Locally, builders are managing volume by decreasing sales, by design.”
Gross sales in the Richmond region declined about 11% from April to May and then declined 20% from May to June, according to the association’s research, based on survey of about 20 builders, including most of the 10 largest builders in the region.
“That is evidence of the industry putting itself into a self-induced coma,” Markland said.
From June 2020 to June 2021, gross home sales in the region decreased by 41% and net sales declined by 44%.
The number of canceled projects increased from April to May by about 15%, but cancellations declined from May to June and were down about 18% year-over-year in June.
Some builders have been letting contracts go where costs have priced the buyers out of a home, Markland said.
“Cancellations have decreased, but almost every builder is — by design — decreasing sales or capping sales,” Markland said. “We also have builders who have hit the pause button on sales almost entirely these past two months.”
Lumber prices have had an enormous impact on costs over the last year, though prices have been declining recently.
Much of the attention in the construction business has been focused on sizable increases in lumber prices because the COVID-19 pandemic forced the temporary closing of lumber mills.
Lumber prices have been on a roller coaster ride. Prices have varied depending on the type of lumber, but certain kinds of plywood used in construction jumped as much as 400% in cost. Since May, prices have declined on lumber futures markets.
The National Association of Home Builders reported in May that prices for one industry benchmark for lumber — the Random Lengths Framing Lumber Composite Index — had more than quadrupled since April 2020 to more than $1,500 per thousand board feet, adding nearly $36,000 to the price of a new home.
The recent decline in lumber prices is good news for builders and home remodelers such as Steven Roberts, owner of Virginia Tradition Builders LLC, though it could take some time for lumber futures prices to impact the end market. His company does large-scale home additions along with remodeling of bathrooms and kitchens.
“Lumber prices went way, way up last year and then dropped back down to within 30 percent of where they were at a baseline cost last year, then they spiked back up in May, and now have come back down over the last 45 days or so,” Roberts said.
“We don’t see that at the lumber yard for typically six to eight weeks,” Roberts said. “There is a lag between the futures prices you see on the markets compared to what we buy from lumber yard.”
The pandemic shut down factories, interrupted shipping and stymied supply chains last year and early this year for many essential products in construction, from lumber to steel to PVC pipes.
At the same time, demand has remained strong for new construction in both housing and commercial work.
As a result, “the prices just skyrocketed for materials in plumbing, framing, lumber,” said Kenneth Jones, owner of Prestige Construction, a contractor that does both residential and commercial work. The company’s current projects include a new commercial building just off Midlothian Turnpike.
“Even metal studs have increased some in price,” Jones said.
“It affects everyone,” Jones said, adding that he has not seen a market quite like this in his 30 years in the business. “The demand is still there, though.”
The pandemic also disrupted supplies for appliances and electrical wiring materials using copper.
“The majority of electrical wiring inside any building is copper,” KBS’ Paulette said.
“Water heaters and certain light fixtures have been difficult to fulfill,” Paulette said. “Lead times are long. We have seen the cost of concrete go up recently. We are really seeing it across the board on almost all elements of a building.”
A bigger headache has been “all sorts of supply chain hiccups with plumbing and tile, and cabinetry and hardwood flooring,” said Roberts with Virginia Tradition Builders.
“Flexibility and timing is key,” he said. “For clients who do sign up for projects, we try to set the expectation of having flexibility because something they may need along the way is going to be delayed or unexpectedly discontinued. Having flexibility and being open to making a second decision is important. It is kind of the new normal right now.”
The pandemic isn’t the only factor in the cost increases, said Hunter Lansing, CEO of Henrico County-based Lansing Building Products.
Winter storms hit Texas earlier this year and shut down the power grid, resulting in disruptions for some major suppliers of construction products based in that state. That included makers of key ingredients in the PVC pipes that are used in most plumbing and drainage systems, Lansing said.
Paulette with KBS said the cost of PVC has gone up about 300%.
Lansing Building Products supplies windows, doors, gutters and siding to about 60,000 customers, mostly building contractors and professional home renovators around the country.
The cost of windows is up 7% to 10%, while vinyl siding and asphalt roofing has gone up 10% to 15%, Lansing said.
“Basically, what happened is in the middle of March of 2020, they shut down a lot of these manufacturing facilities,” Lansing said. “Nearly all of our manufacturers [suppliers] came pretty close to a grinding halt because there was so much uncertainty because of this pandemic.”
“It is really hard to shut down a manufacturing facility and then bring it back to full capacity,” he said.
“On top of that, there were shopping challenges” at ports, Lansing said. “A lot of these huge cargo ships have not been able to get unloaded at the rate they normally would because there are not enough people working there to unload it.”
Like many other suppliers and builders, Lansing Building Products has been put on allocation with manufacturers of some supplies, meaning that the amount of supplies the company can get is based on availability rather than need.
“I think we could [still] be on allocation towards the end of the year,” Lansing said. “I keep trying to listen as closely as I can to when demand starts to ease off. As long as people are willing to pay double-digit price increases for materials, I think it could continue towards the end of the year.”
His advice to consumers looking to do home renovations: “Plan to wait for materials, and then plan to wait for your remodelers to show up. Our backlog is months and months, and your average builder, contractor and remodeler is also backed up for months.”
Some builders are including price escalation clauses in their contracts.
Debbie Stoddard, a co-owner and vice president of Finer Homes Inc., a single-family home builder based in Chesterfield, said the company started doing that last fall.
“We did put a clause in our contracts to be able to escalate [the price].” she said. “At the same time, the buyer could walk if they want to. They could walk away and we wouldn’t give them a hard time.”
Some buyers have decided to wait as much as nine months to a year to start a project, but overall the demand has remained strong, she said. “I think it is because buyers can back out,” she said. “It is comfort to them and so they say ‘Let’s go ahead and give it a try.’”