Same supplies, higher prices
Birmingham Business Journal - by Cart Estes Special
The raising of new homes and commercial buildings might soon be curtailed by the continued rising of fuel costs.
That seems to be the general opinion of a number of officials and analysts within the construction industry. The price of building materials has increased dramatically in recent months, propelled mainly by the jump in the cost of oil, which affects both the production and distribution of most materials.
"Since about the middle of last year, we've seen (the cost of) building materials increase substantially, mostly due to the rising oil cost," saysMark Saliba, president of the Home Builders Association of Alabama and owner of Alfred Saliba Corp. in Dothan.
"Not only is oil used in a lot of the manufacturing of these products, but also in getting them from the manufacturer to the wholesaler to the dealer - the whole process."
So the pain of rising gas prices is felt not only at the pump. It is experienced whenever a consumer walks into a building-supply store such as Lowe's or The Home Depot, and it can be seen in the bottom-line construction costs of new homes and commercial buildings.
"A lot of people don't realize how many petroleum-based products are in a house," saysRhonda Brantley, president of the Greater Birmingham Association of Home Builders and of Brantley Homes Inc. in Birmingham "It affects roofing, windows. It's amazing what all it affects.
"Gypsum and the gyp boards are out of sight. They have inflated to the point where they are one of the largest things affecting (the cost of) housing today. The other big thing is (the price of) steel and copper and how much of it we use in a house. Light fixtures, hand railings. That's been a huge problem."
High costs, postponed projects
Even a price increase in something seemingly as innocuous as rebond carpet pad can have a significant impact. The price of rebond - the cushion that lies beneath most carpeting and which is used in 85 percent of homes in the United States - has nearly doubled in the past two months and is expected to rise higher this summer. That alone could add several hundred dollars to the cost of new construction and recarpeting jobs.
"Generally, material costs are up 20 to 30 percent across the board," Saliba said.
Indeed, according to figures from the Associated General Contractors of America, the cost of steel pipe increased 34.6 percent in 2005, cement was up 14.5 percent and concrete rose by 13.9 percent. None of those materials increased by as much as 5 percent in a single year anytime from 1990 through 2004. And in the past year, from April 2005 to April 2006, there have been increases of 87 percent for copper and brass mill shapes, 48 percent for asphalt, 26 percent for gypsum products and 18 percent for plastic construction products.
This sudden increase in construction costs has caught some by surprise and has resulted in the postponement of proposed building projects. For example, the city of Dallas had set aside $57 million for construction of a bridge over the Trinity River, but the lowest bid for the project was nearly twice that amount ($113 million).
And there are no signs of a slowdown in the price increases anytime soon. The AGC of America reports that suppliers of asphalt raised prices as much as 15 percent just during the fourth week of May in many parts of the country. New York City-based Turner Corp., one of the country's largest general contractors, is predicting an 11.9 percent increase in the average cost of construction nationwide in the second quarter of this year, compared with the second quarter of 2005, and a 2.8 percent increase over the first quarter of 2006.
Global issues
"It's hard to foresee those costs going down until we see a change in fuel costs," Saliba said.
But the price of petroleum is not the only factor fueling the inflation of building materials.
There also is an increased demand for construction materials throughout the world, especially in China and India.
It is estimated that China alone will spend approximately $375 billion this year on construction.
Add in other factors such as rising interest rates, increasing labor and insurance costs, government regulations and some material shortages caused by the building demand created by Hurricane Katrina, and it creates an atmosphere conducive to a rapid rise in construction costs.
"I don't want to put it all on fuel," Brantley said. "That's part of it, but it's not the whole thing. It's a combination of a lot of factors."
The situation is not expected to change in the short term, according to Ken Simonson, chief economist for the AGC of America.
"I expect a few of these increases to level off as the housing market cools, but most are tied to strong U.S. and world demand for materials and freight transportation," Simonson said.
Most Read Stories |
Most Emailed Stories |
