Demand for new houses: 'It's insane'

·5 min read

Jul. 4—TRAVERSE CITY — Potential homeowners have a long and winding road to follow before they can relax on the couch in a new home in northwest Lower Michigan.

They need to accumulate plenty of cash, choose a buildable lot, select a contractor who can find enough skilled trades workers to assemble a house, wait months or years for construction to begin — and then rethink their budget to account for increases in materials and labor costs.

"Our biggest problem right now is material costs are just ridiculous," said contractor Ryan McCoon of Endura Performance Homes. "It's insane what's happening right now in the industry. And no one really has an answer for it."

Lumber is the standout in recent price increases.

"250 percent increase in a year — unbelievable," McCoon said. "The average is between 3 and 7 percent annually."

Bob O'Hara, executive officer of the Home Builders Association Grand Traverse Area, offers this advice to anyone planning to have a home built in the region: "Be patient and plan ahead."

"Most of them understand that they have to be talking about next year at least," said O'Hara. "They've largely been patient. Part of the reasoning behind that might be the high costs right now. Costs are skyrocketing this year. A lot of people had to recalculate their budgets for housing."

Some buyers are willing to wait to begin construction because they hope prices for lumber might come back down after the coronavirus-driven materials shortages fade.

Rising costs

Overall home construction costs are going up for several reasons. Two of the most important are lumber and labor.

"Lumber prices have tripled from July (2020)," said contractor Scott Norris of Scott Norris Construction. "But lumber is only one piece of the puzzle on a house. There are other things haven't gone up as much."

Still, the overall cost of a new home burst through the roof during the COVID-19 pandemic.

"I would guess housing in the last year has gone up at least 20 percent, maybe more," Norris said.

O'Hara doesn't see a quick end to the trend of higher building costs.

"The demand is there, the supply chain problems are still there, so I foresee it probably continuing," he said. "There have been some signs of the surge weakening, but no real reversal yet."

Commercial construction

High lumber prices and other factors also have affected commercial construction.

"Some companies are already booked, some through the end of summer, some through December," said Kendra Balderach, executive director of the Builders Exchange of Northwest Michigan. "Some people are not even bidding on projects right now," because they're already so busy."

The builders exchange is a nonprofit that gives members access to project documents for commercial and industrial projects, so they can decide which jobs they want to bid on. Some commercial contractors are available for work despite the challenges this year, she said, but supply chain issues remain a factor.

"Commercially, the timeline has changed due to the lack of supplies and the price of lumber," Balderach said.

Demand for new housing continues unabated across northwestern Lower Michigan.

"We're relatively busy," said Norris. "We've always been busy. I've been around for a long time, so we have an established clientele. Things are very busy, in spite of exorbitant lumber prices. There still seems to be demand."

McCoon agrees.

"It's insane," he said of demand for new housing. "We work on a first-come, first-served basis. We're working with lots of clients all the time, so whoever is ready first — whether it be design work, or permitting, or financing. Talking to a lot of builder friends, they're in the same boat. Everything is scheduling for next year."

Workforce

Workforce issues contribute to the backlog.

"It's hard to find skilled labor," said Norris. "We could do more work if we had access to more skilled labor."

He currently has 17 employees on his payroll, down slightly from pre-pandemic levels.

A few of his workers lost work days during the last year because they were ill with COVID-19. Each time one of Norris' workers got sick, he was out an average of about two weeks.

But perhaps the biggest labor issue is that skilled-trades workers are seeing opportunity in self-employment.

"We've had a few people who've decided to actually go on their own, because there's so much work, and they can make more money," Norris said.

McCoon tells the same story.

Opportunity

"The people who have left have either gone on their own," he said, "or they've found a job doing something that pays more — because there's tons of opportunities out there."

"This side of the market is just so busy, and there's such a demand for skilled people in the construction industry that they're kind of naming their own price. They can basically can say, 'Here's what I need,' and people are paying it," said McCoon. "Employees are leaving to go on their own, to go freelance or start their own business. They can make more money than being employed by somebody else."

McCoon has just five employees at the moment, down from seven. To adjust, he's had to shift some work from his employees to subcontractors.

It's impossible to tell when labor issues will settle out, or when lumber prices might decline. Demand for new houses, though, remains high.

"It's unlike anything I've seen," said McCoon. "People are still willing to build. It's just that we do not have enough people to build the amount of houses that are required for this area right now, at all, period. Nowhere near enough people."

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