We have all heard about the crazy cost increases…
in almost all things construction related. We have some insights as to why this is happening and to what extent.
Yes, it can be explained at a glance as simple supply vs demand. Demand is high, supply is not. However, those factors affecting the cost increases are not that simple. They are connected in a tangled mesh we have not seen in the last decades that I have been involved with the industry.
To say there is a labor shortage would be an understatement.
We have realized this for several years since the “Great Recession”. What has changed now is those who did the manual labor, even day labor, are gone. The stimulus package is suppling unemployment income at rates high enough that those who were working, are now making enough not working to get by. Both a blessing and a curse. There will be an end to these once things settle down and rates return to pre pandemic norms.
Let’s Talk About Materials
As for the construction materials, and just about anything that is manufactured or mined has been affected by the events of the past 13 to 14 months. Just about everything connected to the construction industry is manufactured or mined. Even a simple 2×4 is manufactured. Given the varied quarantining applications across the globe, certain facets of the industry have been overwhelmed more than others.
Some examples might best illustrate the quandary. But a caveat, this is not an indictment of the health care concerns of anyone. The quarantine happened. I am just trying to explain the effect.
Let’s look at a granite countertop, and a refrigerator.
Granite is quarried, (mined), usually in a country outside the US. The quarantining initially shut down many of these quarries, stopping production all together. Some stayed open, producing less as the social distancing rules were applied. Automation, combined with heavy equipment technology, has allowed others to remain open. Those open were producing at a slightly lower rate. The collective bottom line however is that granite products are scarcer.
The refrigerator has a similar story.
Manufactures built many of them pre-pandemic. Many facilities followed the general operational path of the quarry. Open, shut down, partially reopened, and then shut down again… you get the drift.
Now let’s tie another aspect of the industry together: Transportation. If you were to go visit Long Beach harbor, or any shipping port, you would see a lot of container ships with your countertops and refrigerators on board waiting to be unloaded. The port’s container storage areas are overloaded as there are not enough trucks or truck drivers to deliver them. Also, the backup caused by the Suez Canal debacle.
A long winded way of saying we are being jammed up on so many different levels.
Currently a sheet of OSB Plywood, (4’x8’ x 1/2”) sells for about $61 per sheet. That is up over 200% from this time last year.
Due to the volatility of cost increases across the board (no pun intended), suppliers and subs can only hold their prices for 7 days! That is down from 30, 45 and 60 days a year ago.
Customers are suffering due to this volatility.
At Renovations we are doing our best to keep all of our clients informed. By looking to preorder items at a fixed price we strive to keep schedules on track and are always looking for new and innovative ways to keep us all moving forward.
