OIL PRICES RECENTLY skyrocketed to more than $100 a barrel, prices not seen in years. And multifamily developers are bracing themselves for how those prices will affect construction costs.
Diesel, commonly used to fuel large-production construction equipment, is the product most directly affected by a surge in oil prices, but other products are affected as well.
High oil prices can lead to surcharges in deliveries as well as push up the price of raw materials such as concrete and insulation.
East Rutherford, N.J.–based Allied Building Products is projecting increases of more than 10 percent for a host of its products. Meanwhile, products such as Sheetrock brand Gypsum Wallboard products are seeing 25 percent increases. And wire products have risen by more than 10 percent.
“It's affecting many petrol chemical– based products—insulation materials, waterproofing materials, and plastics,” says Ken Simonson, chief economist for the Associated General Contractors of America, based in Arlington, Va. “I do expect in the short term that construction material costs will be higher."
For some, the turmoil is already wreaking havoc. Marc Padgett, executive vice president with Jacksonville, N.C.–based Summit Contractors Group, which projects starting 1,502 units this year, has definitely noticed the price increases.
“The cost of copper, flooring, and all of our petroleum products, such as Romex brand wire and PVC pipe, is rising with fuel costs,” he says. “Since [much] roofing material is asphaltbased, that increase will be huge too."
Even if prices do stay high, Jim Butz, CEO of McLean, Va.–based Jefferson Apartment Group, points out some advantages to that: “When we went to $4-per-gallon gas, more people wanted to live closer in to employment nodes, which drives people into denser products, and that means they'll end up in condos or apartments."