After several years of grappling with soaring construction costs, developers of mid-rise buildings are getting some relief, but those planning high-rise projects still have a hard slog ahead.
Lumber gets cheaper
The wood products used in homebuilding, from structural panels to plywood, are much more affordable than they were a few years ago. The price of framing lumber is now roughly half its peak of $473 per 1,000 board feet (MBF) in August 2004, and is expected to stay low over the next year.
Although producer prices for wood products overall have been monotonously consistent for the last 10 years, the cost of the lumber used to build houses and apartments is much more volatile. In that decade, the price of framing lumber veered back and forth from a little more than $250 to almost $500 per MBF. Prices crashed below $300 last year and are likely to stay low as long as single-family home starts are depressed.
“I don’t expect [that price trend] to turn around and begin increasing for more than a year,” said Kenneth D. Simonson, chief economist for the Associated General Contractors of America.
In fact, lumber prices could fall further. Contractors now get most of their wood from Canada as more and more publicly owned forests in the United States are protected from cutting. To enter the United States, Canadian lumber must pass through a complicated web of rules and tariffs that add 15 percent to the price. These tariffs will become especially painful once the demand for lumber from housing eventually picks up, as it inevitably will, said Bernard Markstein, staff vice president for forecasting and analysis for the National Association of Home Builders Economics.
Fire sale on gypsum wallboard
By this April, prices for gypsum wallboard had dropped more than 12 percent from their all-time high in July of last year, according to data on producer prices from the Department of Labor.
They’re likely to fall even further as housing starts remain depressed and new wallboard factories open their doors, according to economists like Simonson.
In 2007, the developers of single-family homes will probably use just 34 billion square feet of wallboard: That’s 3.4 billion square feet less than in 2006 and 5.9 billion less than in 2005. Developers of offices and shopping malls won’t use all the excess, Markstein said. Concrete and cement costs swell Short of a global recession, experts expect steady growth in concrete and cement prices as tons of those materials ship to growing economies like China and India. Since 2001, producer prices for cement have grown by more than a third after nearly two decades of sluggish increases.
In many high-rise markets, concrete contractors are more than busy and see no reason not to pass on these costs to developers. “It’s probably 8 to 10 percent higher than what we thought it would be,” said David Levey, executive vice president for Forest City Residential, of the price of concrete work on a recent high-rise job in Dallas.
Copper and steel prices rising
The metals used by apartment developers have been especially sensitive to demand from overseas. The price of products from steel mills jumped 75 percent between 2003 and April 2007.
Prices for iron and steel scrap have been wildly volatile, spiking and crashing and spiking again. In April, those prices were getting close to double their 2000 levels.
Volatility also plagued the price of copper and brass mill shapes, used for plumbing in many homes, as labor disputes in the copper mining countries of South America drove producer prices in April to three times their level in 2003. “Copper has just gone crazy,” Markstein said.