Lumber Prices Continue To Drop, But A Combination Of Red Tape And Hikes In Other Material Costs Are Driving Repricing On New Housing Builds

Anyone who has been part of a new build, whether it be a residential home, office building, renovation project or multifamily dwelling, knows how much work goes into estimates and budgeting heading into the project. 

So when you get the news that building costs have gone up and you can expect a much elongated and estimated completion timeline, personal and financial anxiety can ensue. The December National Multifamily Housing Council (NMHC) Survey of Apartment Construction & Development Activity will not ease that stress. 

The recent NMHC survey showed glimpses of minor improvements in experiencing construction delays and deals being repriced higher, but 84% of respondents still reported construction delays, and 58% reported repricing increases in projects at an average rate of 8%. 

On the plus side, permits were processed at a faster pace, with only 12% reporting waiting over nine months compared to 22% in September. The price of lumber, which skyrocketed during the pandemic, also continued its downward trend, dropping 5% in the past three months. It was the third consecutive quarter lumber prices dropped. But everything else is rising, including insulation (up 9%), electrical components (up 13%), appliances (up 9%) and exterior finishes and roofing (up 9%). 

“While the worst of construction and labor costs and delays may be in the rearview mirror, we should understand the multifamily business still faces very real headwinds when it comes to the construction and renovation of communities," NMHC President Doug Bibby said. “Rents are decreasing across the country from the heights experienced over the last two years, but we still need far more housing of all types in cities and towns across the country.”

Several industry analysts also blame the permit process and outdated zoning laws for high costs. George Ratiu, senior economist at Realtor.com, told Business Insider that zoning is about 60 years out of date in many places. He said cities need to be zoned to allow housing to be built at a greater density farther away from their downtown areas. That view was echoed by Zillow Chief Economist Jeff Tucker, who said the biggest hurdle to affordable housing is “zoning reform."

NMHC’s Bibby concurred. “As lawmakers focus on housing challenges in their communities, they should work with the private sector to implement policies and procedures that speed the creation of new housing and reduce costs and unnecessary regulations.”

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