The US Census Bureau’s Small Business Pulse Survey (SBPS) has been active since April 2020 in an effort to track changes in business conditions during the ongoing COVID-19 pandemic. Each month, Levelset will be taking a look at key issues for the industry, as illustrated by the data of the SBPS.
Domestic supply chain problems reaching peak levels for US contractors going into fourth financial quarter
Though Levelset’s last dive into the US Census Bureau’s Small Business Pulse Survey displayed levels of optimism from contractors about the near future in the construction industry, these business owners may have to look even farther for a respite from the effects of the COVID-19 pandemic.
Data collected from September 13, 2021, to September 19, 2021, noted that US contractors are dealing with significant supply chain issues.
Though early 2021 saw fewer issues with supply, problems have continued to rise: This most recent data from the SBPS showed that 62.7% of respondents dealt with domestic supply chain issues.
“I’ve been doing this since 1986 and I have to say I’ve never seen anything like this before.”
– Mike Sivage, CEO of Sivage Homes, Albuquerque, NM
This is brought into even more significant focus when compared to the national, non-industry-specific data that shows 43.3% of small businesses dealing with domestic supply problems.
“The supply chain for both land and construction is significantly stressed and that will continue into the fourth quarter and beyond,” said Lennar Executive Chairman Stuart Miller on a company conference call discussing the third financial quarter.
Contractors are also having to pay significant amounts more for their normal products than they’re used to dealing with.
According to data gathered from September 13, 2021, to September 19, 2021, 54.4% of survey respondents saw a large increase in prices compared to what they were paying prior, while 31% saw a moderate increase in these prices — a large majority of survey respondents reporting a price increase.
An analysis of data from the Department of Labor conducted by the National Association of Home Builders (NAHB) noted that “wholesale prices for a category of homebuilding components that includes windows, roofing tiles, doors and steel, increased 22% over the last 12 months” — a major increase over the normal 1% yearly increase that these prices saw prior to the pandemic.
“Nowadays, we literally could be sitting waiting 30 days, maybe even 60, for one thing or another,” said Mike Sivage, CEO of Albuquerque’s Sivage Homes. “I’ve been doing this since 1986 and I have to say I’ve never seen anything like this before.”
Supply problems are going deeper than just general shortages
The most significant of recent supply issues has become an aluminum shortage, which contractors are experiencing nationwide.
The Home Builders Association of Raleigh-Wake County noted that the shortage has coincided with a large spike in requests for items made of aluminum, which is now significantly driving up the cost of aluminum-based products.
Andy Ellen of the N.C. Retail Merchants Association similarly said “Retailers are doing a very good job trying to manage their inventory but are also experiencing supply chain issues with certain products such as products containing plastic or aluminum that can range from fishing lures to spices due to the thin piece of aluminum that seals the bottle.”
A shortage of shipping containers is also driving up the cost of shipping dramatically which ultimately gets passed onto the consumer,” Ellen added.
There’s also an element of reactionary moves affecting the rest of the materials market.
“When lumber [prices were] super high, we went to metal studs. Now because of that, aluminum’s gone up a lot,” said David Price, owner of North Carolina’s David Price Construction (as well as Vice President of the Raleigh-Wake County HBA).
Rather than just having general price impacts for contractors, individual projects are getting held back.
“We can’t start [some projects] for 15 weeks because the windows won’t be in for 15 weeks. That’s how long the wait time is now,” Price added.
“For us it’s been a mess, and as we look ahead to 2022 we don’t see this going away any time soon unfortunately,” said Mike Keown, CEO of Commonwealth Rolled Products, at the Harbor Aluminum Summit, a major meeting of international aluminum suppliers.
“For us we think it’s just begun. It’s kept our head on a swivel this entire time,” said Keown.
Several other conference attendees added that labor shortages are the biggest problem they’re currently facing.
“Consumers are ordering more than 100% of their expected needs,” said Adam Jackson, director of metals trading at Aegis Hedging. “They don’t expect to receive 100%, but if they over-order, maybe they’ll land on the right amount and not forfeit sales. Such a practice has a serious risk if prices fall and you’re carrying extra unhedged inventory.”
These conditions aren’t just impacting contractors, either, showing how serious and far-reaching these shortages are: Even beverage giant Coca-Cola is facing a major shortage of cans for its products.
Builders are working to change their habits as more delays remain on the horizon
Those conditions are likely to persist for a significant period as well, and likely will continue to spread to other materials. Robert Dietz, chief economist at the NAHB, noted that the organization has heard from builders that “there are ongoing challenges, and in some cases growing challenges, with flooring, other kinds of building materials.”
“The price we’re paying for lumber today is the same price we were paying 90 or 120 [days] ago,” said Jon Tattersall, president of Thomas James Homes.
Tattersall noted that the company’s overall building costs had increased about 30% since November 2020, saying that “On our future [homes], those are the ones we’re having to raise the costs on.”
“Delivery times remain extended and the chronic construction labor shortage is expected to persist as the overall labor market recovers,” added NAHB Chairman Chuck Fowke.
This may have a significant impact on the way that homebuilders approach new construction.
Zonda Economics, a real estate data tracker, estimated that close to 85% of builders are intentionally limiting their sales in order to curb supply problems.
“They’re trying to make sure they have the land ready, the workers ready and the materials ready to be able to actually [deliver] the homes that they’ve sold,” said Zonda chief economist Ali Wolf.
Some builders are even trying to deal with supply chain problems by installing temporary fixtures and appliances as stopgap options so that buyers can move in as soon as they’d like.
“Then, as soon as the original item becomes available, we are returning to install it,” explained Tri Pointe Homes CEO Doug Bauer of the process.