Builders Struggle to Work With Higher Energy Costs

Higher gas costs are driving up prices for a number of things–airfare, pharmaceuticals, even golf balls–and they’re taking a toll on builders, too.

Soaring energy prices have raised construction material prices for both commercial and residential builders, the Dallas Morning News said Friday.

In fact, construction costs are rising at more than twice the level of overall consumer prices, according to the Associated General Contractors of America–and costs for some building materials, like steel, concrete and roofing materials, have increased even faster.

The higher energy costs translate into higher production prices for building materials, Federal Reserve Bank of Dallas economist D’Ann Petersen told the Morning News.

Raw material prices are also on the rise, which doesn’t help.

Unfortunately, higher concrete costs aren’t the only price challenges homebuilders are dealing with.
Suppliers–who are also struggling–are in some cases trying to make up for losses by adding fuel surcharges onto delivery costs.

Andy Haymaker, president and co-owner of HM Homebuilders in Lexington, Ky., told Business Lexington he has been getting three or more notifications of new surcharges each week from his suppliers.

"All my deliveries from lumber companies are now charging, and they never used to. The cost is being passed on to the consumer," Peter Oakley, owner of Oakley Construction in East Bridgewater, Mass., told the East Bridgewater Express.

The charges can add $25 to $50 per delivery; for a construction project averaging 10 deliveries of essential building materials like brick, lumber and shingles, that can add up, Haymaker said.

Which is something to be aware of when calculating–and quoting–job estimates.

• Confirming whether or not fuel surcharges will be added to delivery costs before you place orders can help.

• Locking in prices for building materials with suppliers as early as possible when you start a project is also a good idea.

Passing the increase on to buyers is one way of buffering the cost.

But it’s also important to recognize that homeowners and prospective buyers–who we are all hoping will stop thinking about buying, and start buying in big numbers–are concerned about rising energy costs, too. 

According to Chicago Tribune columnist Mary Umberger, energy discounts are one of the hottest new builder incentives.

Forget flat-screen TVs; free gas may sell your unsold homes.

That’s what some builders–like Kimball Hill Homes, which is offering $50 gas cards to buyers who pre-qualify for a loan with its mortgage subsidiary–are banking on. Kimball Hill is also offering agents gas cards for bringing in clients.

New York-based Crescenzo Construction Inc. is offering free electricity to buyers at its Benck’s Farm development. The developer will pay your electric bill–up to $150 a month–for 10 years.

Dealing with higher energy costs may be a challenge to your business–but it may also be a way to push unsold homes.

Incentives can be a great selling tool; but the economy is down, and frankly, people are less concerned with getting a luxury item than they are with being able to afford heat.

Provide potential buyers with a way to reduce their energy cost concerns–via a gas card or electricity discount–and the decision to purchase a home may seem a little bit easier. 

After all, if we’re going to have to pay more because of increased energy costs, shouldn’t we also be able to use them to make money?