Increasing Construction Costs Affect Everyone
Supply chain shortages and increasing costs are making headlines but the real story is that builders are taking as big of a hit as buyers.
By: Nikki Giordano, CEO of Anchorage Home Builders Association
Alaska is one-of-a-kind. From Alaskans’ functional-with-flare style to their independent attitudes, Alaska’s remoteness creates a beautiful uniqueness. The state’s isolated geography also comes with its own set of problems. Shipping to Alaska is expensive and takes time. While Alaskans get annoyed at the occasional bad produce, nothing has been more frustrating than the rising cost and delayed shipping times of construction materials.
It's a problem that’s plagued the entire country since the beginning of the pandemic. Building material prices have jumped more than 35% since January 2020 and 80% of that increase has occurred since January 2021, according to the National Association of Home Builders. The Anchorage Home Builders Association and NAHB have been tirelessly advocating for ways to curb the rising costs.
NAHB routinely engages with members of Congress and the White House on issues affecting the housing industry. NAHB’s efforts have paid off in the form of awareness and changes. In early 2022, the Commerce Department announced its plans to cut tariffs by more than 35% on shipments of Canadian lumber into the U.S.
Rising lumber costs dominated price spike headlines. The increased cost of lumber added more than $18,600 to the price of a new home, according to NAHB. This is extremely frustrating for homebuyers who are already facing rising home prices and a lack of inventory. Alaska set a record in 2021 with the cost of the average home soaring to $388,648, according to the Alaska Department of Labor & Workforce Development.
New construction is one of the solutions to Anchorage’s housing problems. New construction adds much-needed inventory. New homes are also safer and more energy efficient. However, many new construction projects are now at price points that many homebuyers can’t afford. This is due in part to the soaring costs of construction materials and lack of inventory.
Builders are feeling the pinch as much as homebuyers. Builders don’t want to price the majority of homebuyers out of the market. A wide variety of home prices is better for everyone. Affordable housing is a key component of a healthy economy. When Alaskans of all income levels can buy homes it benefits everyone. That’s why builders are frustrated with construction costs and doing everything they can to combat the increase.
“Homebuilding is about creating communities” said Jason Dial, AHBA President, Rain Proof Roofing. “There are always challenges that get in the way of that. Currently, it’s the cost and availability of construction materials, as well as a lack of labor. We’re doing everything we can to overcome these challenges like ordering months in advance and tracking prices, but there’s only so much we can do.”
Costly construction materials eat up profits by lowering a builder’s profit margin on a home. Shipping delays also create headaches. When something is on backorder it delays the progress. When builders have to wait for supplies like flooring, windows and cabinets, the project takes longer to complete. While this is annoying for homebuyers who are waiting to get into their homes, it’s costly for homebuilders who sit on the project, sometimes for months, waiting for it to be complete.
AHBA and NAHB will continue to advocate on behalf of homebuyers and the homebuilding industry. There’s a lot of work to be done and solutions won’t happen overnight like easing production bottlenecks and increasing output. NAHB will continue to keep pressure on policymakers and industry stakeholders because housing is an important part of the American Dream and everyone should be afforded the opportunity.