Rising Costs, Labor Shortages Impact Development: NMHC

A record number of multifamily developers are reporting construction delays and price increases in materials, according to the latest survey.
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The latest National Multifamily Housing Council COVID-19 Construction Survey finds a record 83 percent of multifamily developers reported construction delays, up significantly from the March survey which also set a record with 75 percent of respondents reporting delays.

All respondents reported cost increases for materials with lumber seeing the steepest price hike. On average, respondents experienced a 201 percent price increase in lumber costs over the past year.

NMHC received 109 responses from leading multifamily construction firms for the seventh round of surveys aimed at helping the industry stay on top of changing marking conditions during the COVID-19 pandemic. The latest survey was conducted from May 17 to June 1 and the first was taken from March 27 to April 1, 2020.

Main reasons cited for delays in starts were permitting, entitlement and professional services (70 percent); projects not being economically feasible at the time (56 percent), up from 30 percent in the last survey; and economic uncertainty (27 percent).

NMHC President Doug Bibby said the findings of the latest survey highlight the deep challenges multifamily builders and developers are facing as the country continues to recover from the economic impacts of the pandemic.

“While we are encouraged by the overall prospects for the industry, skyrocketing construction costs and a lack of available labor makes it increasingly difficult and expensive for apartment homes to be built—worsening the affordability challenges facing communities across the country over the long-term,” Bibby said in a prepared statement.

Price Hikes, Labor Shortages

NMHC found 86 percent of respondents were impacted by a lack of construction materials, the highest recorded since the survey began at the beginning of the pandemic last year. The latest survey also saw a record 100 percent of the respondents reporting price increases in materials, up from 93 percent in round six and 82 percent in round five.

The average firm experienced a 38 percent price increase over the past 12 months for its most impacted materials, excluding lumber. The overwhelming majority of respondents (78 percent in this round) indicated lumber increases were the steepest but they also experienced hikes in metal components, including steel and copper (47 percent of respondents); drywall/insulation (21 percent); PVC (16 percent) and electrical components (12 percent).

In response to the lumber price hikes, 62 percent of the firms surveyed said they had re-priced projects. Nearly 50 percent of respondents said they continued projects but made price-saving modifications or eliminations. Other changes included delaying starts of projects (39 percent), using alternative materials (35 percent) and changing lumber buying practices such as new or increased use of lumber brokers (35 percent).

NMHC noted 69 percent of respondents reported deals had to be priced up by 5 percent or more, which it described as a “drastic increase” from the previous survey round when that number was 14 percent.

In addition to price increases, developers are also finding it hard to obtain materials. While lumber was the top material of concern (84 percent), 53 percent of respondents had trouble accessing appliances and 24 percent cited metal components including steel and copper.

The report noted this survey found a wider variety of materials were cited by the respondents “highlighting the continued strain felt in sourcing construction inputs.” Some of those other materials included drywall/insulation (19 percent), doors and windows (17 percent) and cabinets and countertops (16 percent).

Labor availability has also become an increasing problem faced by multifamily developers with a record 47 percent of respondents citing it as an issue for their firms—an increase of 11 percentage points from the previous round an up from 20 percent in round five. Nearly three-quarters (74 percent) cited a general scarcity of laborers.