Supply shortages and high demand have caused lumber prices to increase by about 200 percent since this time last year, according to the National Association of Home Builders.
Although the pace of residential construction in Central Kentucky remains strong, it is not without its challenges, industry leaders said.
While many businesses saw slowdowns, if not complete shutdowns, over the past year, residential construction continued apace, said Chris Howard with Anderson & Rodgers Construction.
Chris Howard
“The construction business was booming last year,” Howard said. “We had as many calls as we’ve ever had, and we’re continuing to work through them.”
With schools closed to in-person learning and with more people working from home, many Central Kentucky families decided last year was the time to work on their homes.
“For us here in Central Kentucky, it was a lot of renovations and outdoor spaces as people were at home … with their family and realizing, ‘You know I need to do something to my kitchen, it doesn’t work for us anymore,’ or ‘I want a home office,’ or ‘We need to expand the deck so we have more room to entertain,’” he said. “We saw a dramatic uptick in those calls. I would say they more than quadrupled. And we really saw an uptick on outdoor spaces. That was a huge focus for people last year.”
Kristy Gooch, president of the Lexington- Bluegrass Association of Realtors, said home sales also remain competitive.
Total home sales were up 13 percent in January 2021 compared to the prior year, rising to 939 over last year’s 828. And even though new construction sales were down 13 percent over last year, January 2021 still managed to be the second-highest January sales total since 2007.
Kristy Gooch
“Despite the lack of inventory, the real estate market has been able to maintain a healthy level of activity in both traffic and sales,” Gooch said. “However, without more sellers, the market won’t be able to sustain this momentum forever. There is an appetite for more properties to accommodate the heightened demand that exists in the marketplace.”
New construction sales accounted for 10 percent of the real estate market. While the number of new housing starts dropped in March and April, they picked back up for the remainder of the year. In June 2020, the number of new housing starts, 162, almost doubled 2019’s new housing starts of 88.
The cost for building those homes has also increased, Gooch said.
The rising cost of construction is based on supply and demand, she said. As more projects are started and demand increases, the total supply of materials decreases. In some cases, contractors are having to renegotiate contracts because of increased costs in materials, she said.
“I’ve had three contracts that were renegotiated or canceled because the builder could not build the house for the contracted price,” she said. “In some cases, the lumber package they had purchased just months before went up.”
Teddy Rodgers, president of Anderson & Rodgers, agreed.
The costs of materials are rising, and they don’t show any sign of going down anytime soon, he said. Due to the rising costs of petroleum, builders are seeing increases in the prices of many materials.
“We’re starting to see the effect of petroleum gas prices now. You’re also going to see shipping prices increase." —Terry Rodgers
“We’re starting to see the effect of petroleum gas prices now,” he said. “You’re also going to see shipping prices increase. You’re going to see products that have petroleum in them increase. We’re seeing window prices going up 12 to 15 percent. And, when we’re talking about petroleum, we’re talking about rising prices in paint in the future, as well.”
The price increases could affect everything from vinyl siding to plastic electrical boxes.
Ensuring a steady supply of building materials has also become challenging, Howard added.
Higher building costs have so far not slowed demand for new residential construction and renovation projects in Lexington.
As construction boomed through the pandemic, more materials were used up. By fall, builders were starting to see shortages in raw materials, including lumber. Newly made materials also weren’t getting to sites quickly enough because mills and manufacturing plants were shut down due to the pandemic.
Since more manufacturers are reopening, the hope is those shortages will ease, they said.
Another challenge facing the construction industry, Howard said, is labor. Finding skilled contractors and trades people was already difficult, and during the pandemic it has become even more so.
“We’ve seen a shortage for several years, and it just seems to be getting worse,” he said. “It’s definitely an issue that’s going to continue to affect the industry, and it is really affecting the cost in our industry. We’re getting to a point where there’s a limited number of people that you can call to do a certain job, and they’re [able to dictate] the price at a certain point.”
On the commercial side, Rodgers anticipates construction will be booming there as well. As businesses reimagine what work will look like after the pandemic, and with more people choosing to work remotely on a permanent basis, that means reimagining office spaces.
“You have a lot of empty space out there, and that’s lowering the demand, so people are offering better rates,” he said. “You’re having a lot of people relocate either to a smaller space or to spaces that are starving for a tenant ... I think it’s going to continue to be a very hot market with small- to medium-sized projects where [a company is] downsizing and needs minimal renovation work.”
This means even more work ahead for local builders, as long as the supply of materials and labor can keep pace with the rising demand.