Volatility in Construction Materials Pricing Is Putting Strain on Multifamily Developers

Posted on March 7, 2019

Apartment developers continue to be stressed by the unpredictable cost of construction materials.

Overall, materials prices keep rising faster than inflation. But what’s worse is that prices for individual construction materials are unpredictable from month to month. The price of lumber and diesel fuel has fallen sharply, for now. But new policies from the U.S. government continue to jolt the markets, from possible sanctions on oil producing countries like Venezuela to government tariffs on imported steel.

Developers and contractors are struggling to adapt. “It’s likely that contractors will try to protect themselves from unexpected price jumps by putting contingencies into their bids or asking owners to share price risks,” says Ken Simonson, chief economist for the Associated General Contractors of America.

“The outlook remains uncertain, with oil prices and tariffs especially in flux,” he adds.

At press time, there was still a risk that President Donald Trump would increase tariffs on thousands of Chinese goods to 25 percent from the current 10 percent, according to Simonson. Or the U.S. might continue to defer the increase or even roll back the current tariffs on other Chinese goods. The outlook on other tariffs was also uncertain.

“President Trump could unilaterally change the 25 percent tariff on steel and the 10 percent tariff on aluminum in either direction at any time,” says Simonson.

Changing U.S. policy is making it difficult for developers to plan. The most significant problem that housing developers of all kinds faced in 2018 was “building materials prices” according to a survey from the National Association of Home Builders (NAHB). The vast majority of developers (87 percent) said the cost of materials was a significant problem for them in 2018 and 69 percent anticipate more trouble from material costs in 2019.

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Bendix Anderson, National Real Estate Investor.