Lumber Prices Stalling Much Needed Multifamily and Affordable Housing Supply
Housing demand has remained high throughout the COVID-19 pandemic, as people across the United States have rethought the concept of home and where and how they want to live. Single-family builders especially have had an increasingly hard time meeting this demand, as material prices — especially lumber — have continued to rise at unprecedented rates. Multifamily demand is growing at a slower rate, but demand is increasingly shifting to more affordable suburbs where low-rise wood-frame construction is also being affected by high lumber prices.
The uncertainty in the market has left multifamily developers and builders less than optimistic, as NAHB's recent Multifamily Market Survey shows. Although the multifamily sector is expected to rebound later in 2021 and in 2022, the current environment is placing significant pressures on the industry, which is experiencing shortages and delays in obtaining building materials, rising prices and labor shortages.
"The lumber price increases in the past year have caused problems across the board for us," shared Matt Stephens, a developer in New Jersey. "Projects have been delayed, and loan approvals are more difficult because of the volatility."
"As multifamily builders and developers, it is difficult to absorb the cost of building materials — and lumber is no exception — and still remain profitable," explained Charles Aggouras, a builder/developer in Massachusetts. "The construction industry works on very small margins, and with COVID, it is impossible to raise the rental pricing or sales prices to make the financials work. We are therefore faced with delaying our projects and waiting for rental price stability and sales prices to increase."
"There are opportunities that now don't make sense to proceed with, even though they would normally be great projects in underserved areas with both market-rate and affordable product," Stephens added.
The financial impact is significant, given the scale of many multifamily projects.
"One 434-unit, 12-building project experienced over $1 million of additional costs for the current six buildings under construction," noted Howard Irwin, a developer who runs/manages a general contractor and property management company that operates in New Jersey, Pennsylvania and New York. "Framing on the remainder of the project was stopped with the anticipated additional costs of $1.5 million based on current lumber prices."
"We closed and broke ground on a 270-unit Class A project in November 2020," explained Lance Swank, a developer in Ohio. "Our budget was sent and submitted to our lender in September 2020. We are now dealing with a $2.5M lumber bust. We are prepared to handle this challenge, but we will be building the project at zero profit or a loss."