Apartment development is supposed to heat up in the United States over the next couple of years, but it's nothing like what’s reported to be going on in China.
In an effort to stave off recession and provide affordable housing, the Chinese government is reportedly in the midst of an ambitious plan to build a staggering 36 million subsidized apartments, known as social housing, by the end of 2015, according to The Wall Street Journal. Besides being floored by that amount of apartment production, U.S. apartment builders are wondering how they could be affected.
Others expressed even more concern. “I could only imagine that it would impact us substantially,” says Marc Padgett, president of Jacksonville, Fla.–based Summit Contracting Group. “We already have a few vendors telling us that a good bit of their business is over there. A project this size would certainly drain the already low [building materials] inventories here and thus drive prices through the roof.”
Kenneth D. Simonson, chief economist for The Associated General Contractors of America, an Arlington, Va.–based trade association, says steel and possibly copper could be the materials most impacted by any sort of international multifamily building boom.
“Steel prices have reportedly risen briskly in the last few weeks,” Simonson says. “I think this housing boom could keep them up. I’m not worried about other materials except copper, which will be influenced by forces stronger than high-rise housing.”
Essentially, Simonson says steel comes from scrap metal, which is made from scrap iron—a portable commodity. “Move-outs of scrap out of the U.S. to other markets vary a great deal from month to month,” he says. “When demand for scrap goes up, it’s felt pretty quickly in the price of scrap metal and the cost of structural steel. From a Chinese construction boom, steel is the one [material] most likely to be affected. If the Chinese economy overall regains its footing, that will put a lot of pressure on demand for oil and copper also.”
Of course, no one knows whether these 36 million units will become a reality, or even how many have already been built. The Wall Street Journal reports that Beijing has left the implementation of this construction to local governments and that they could be inflating the number of units built. The paper goes on to say that there are also charges that the country is simply labeling foundations as a housing start or relabeling projects already under construction as societal housing.
But Chris Overstreet, manager of preconstruction services at Doster Construction Co., a multifamily builder based in Birmingham, Ala., thinks multifamily developers and builders could feel the pain from the talk of massive construction in China.
"I would expect manufacturers that export building materials to China to raise their prices and also place certain products on allocation," he says. "Materials such as gypsum board, lumber, and fiber-cement siding—as well as products that include copper, steel, and petroleum by-products—will increase. The construction industry has seen it happen before, when stories of massive construction projects under way in China began to circulate. This news, coupled with the fact that housing starts here in the U.S. have been down for a few years, will certainly be used as a reason to raise prices on certain building materials."