For Residential Construction, The Best of Times and the Worst of Times

Scott Byers

Scott Byers, CEO

For the residential construction industry, conditions today are a Dickensian novel: It is the best of times; it is the worst of times.

A supply-demand imbalance and historically low interest rates have given rise to the best of times as buyers beg for more inventory at almost any price, boosting profits and guaranteeing a sellers’ market for the foreseeable future.

At the same time, pandemic-induced distortions in the supply chain and a further tightening of the labor market are causing migraines for homebuilding executives who must assemble the jigsaw puzzle of residential construction with half the pieces missing.

The issues facing home builders today are unprecedented and require creative thinking to devise novel solutions. In an effort to help local builders share ideas and best practices, Scott Byers, CEO of Majestic Kitchen + Bath, one of the largest fabricators of hard surfaces, cultured stone and glass in the Carolinas, gathered roughly a dozen industry executives in a conference room at Hall’s Chophouse in Nexton recently to discuss the challenges facing the industry today.

The impact on prices and wait times of a disrupted supply chain was the group’s most pressing concern, along with the lack of available labor to get work done. These issues have stymied efforts to keep pace with demand and driven the value of an average home up $31,000 between January and April of this year, according to the National Association of Realtors.

“The labor constraints, the material constraints lead to rising house costs,” said Charlie Tipton at Pulte Homes. “Lumber was the one that stood out for most of the summer, but really, it’s across the board.”

For example, the cost of wire has doubled over the last 18 months.

Traditionally, lumber suppliers guaranteed the prices they quoted to builders for lumber for 30 days. Those locks dropped to seven days and even disappeared entirely during the summer, reducing the ability of builders to plan and set their own prices to consumers. Although lumber prices have stabilized and even declined, they remain higher than pre-Covid and continue to make builders nervous.

The inability to ensure a timely supply of drywall, or to hire a painter for touch-ups, has created havoc with timelines.

“We’re facing longer lead times and a longer production schedule in almost every facet of production,” said Rob Lucas of Southeastern Family Homes. “For a production home, our target schedule is 4-5 months, but with challenges with windows and trusses and so on, it’s stretched to 7-8 months on average.”

Relationships with vendors are as critical as relationships with clients, the builders say.

“When we saw Covid coming, realizing what it was going to do to the capacity of the market, we said we need to fortify our relationships with our best contractors to keep the best people working with us,” said CopeGrand’s Adam Copenhaver. “That’s one change we made early on that we knew was going to be beneficial.”

Yet home builders, despite the headaches, are enjoying increasing profits. Revenue for the industry has boomed nearly 8% this year for the $113 billion industry, and the five-year forecast calls for continued strong demand as the market rebounds from Covid. From a purely monetary standpoint, it’s a great time to be in the residential construction business.

Except for one thing.

“It’s never been harder to build a house than it is today,” said Hunter Quinn’s Will Herring.

SCBIZtv is part of the SC Biz News family, serving 100,000 high-level business execs throughout South Carolina. Click for more from SCBIZtv.