Homebuilders Getting Slammed By Cost Increases
Written by Samantha Joseph on May 20, 2004
By Samantha Joseph
Concrete prices are likely to rise 30% in the next six months, driven by a statewide shortage of cement, which is used to create the fundamental building material.
Also, rising gasoline and diesel prices are expected to lead to a 50% increase in a fuel surcharge for every load of concrete hauled to building sites, said Adonel Concrete president Luis Garcia.
Three price increases by January will add at least $20 to the cost of a cubic yard of concrete, suppliers say. Each unit now sells for about $55 but could reach $60 after a July 1 hike.
The increases would translate to a $15,000 hike of the cost for the foundation on a 3,000-square-foot home.
And builders warn that other rises may be in store for homebuyers.
Adonel and other suppliers implemented a $5 fuel surcharge in July for every load of building material delivered. Within weeks, the surcharge could reach $7.50.
The growing costs have led to skepticism among some potential homebuyers who have put off purchases, Mr. Garcia said.
"Things are slowing down," he said. "It’s already happening, and what developers might end up doing is building smaller, more affordable housing."
Continental Concrete and Supermix collaborated this month to produce 3,000 cubic yards of concrete in a project that would be too large for them to handle individually.
At Adonel, the shortage means nixing plans to hire 40 truck drivers this summer. It also means closing shop two days a week to prevent layoffs.
"We’re not making money," Mr. Garcia said. "We’re just breaking even."
Rapid inflation in wholesale prices of building materials during the past 18 months could catch builders off guard, said one local developer.
Annual cost increases of 3% to 5% are projected in the construction industry, said Tibor Hollo, Florida East Coast Realty president and chairman. But costs of some materials are much higher now than many area developers and builders would expect, he said.
In a review by his company, Mr. Hollo said, it found that steel costs have increased 50% in the past seven months. Costs are up for other core materials such as wire strand, cement, gypsum, steel studs and plywood. Concrete costs are up 31% and gypsum costs 33%.
"While the tremendous growth in China and the rest of Southeast Asia is seen as the primary catalyst," he said this week, "there are many additional factors such as the weak dollar, rising energy prices, insufficient shipping resources and reluctance on the part of foreign manufacturers to play ball with the US given the protectionist posture of the Bush administration.
"Add this to the above-average demand for materials," Mr. Hollo said, "and you might call it the perfect storm in terms of all these factors rising all at once to create these extraordinary spikes in prices as well as shortages in supply."
Knowing about and anticipating increases can prepare developers for cost adjustments, but many units that are pre-sold may force developers to take a loss, he said.
"Lots of people, when they realize what’s happened to their costs and they are unable to adjust their pricing, they will not proceed with construction," Mr. Hollo said. "As they do, supply will be more plentiful."
Mr. Hollo said this week that he doesn’t expect costs of construction materials to go down much. People in the industry will adjust and condominium prices will reflect the higher costs, he said.
Developers and builders are feeling the material shortage, Mr. Hollo said. Some builders have been waiting for foundations to be poured for more than a month. Foundations, as thick as 9 feet, require a continuous pour and about 2,000 yards of concrete, he said.