Record Lumber Prices Cause 'Sticker Shock,' Slow Some Multifamily Development Plans And Accelerate Others
Though lumber prices have dropped from their record of $1,686 per thousand board feet on May 7 to $1,306 on May 19, the lower price still reflects a more than 260% increase from late last year, according to a CBRE report released on Monday. Though some developers have responded by using other materials, steel — the most common alternative — has also tripled in price since last year.
The result has been "sticker shock" for the multifamily industry, causing some developers to slow or halt projects as they reconcile the new costs, CBRE reports. The effect is similar to how single-family residential construction has slowed this year, even in the face of unprecedented demand, The Wall Street Journal reports. Trammell Crow Residential and Greystar Real Estate Partners are among the multifamily developers that have changed their behavior due to material costs, the WSJ reports.
Including supplemental materials like copper and fuel, the cost of materials in new multifamily construction has risen 25% to 30% in the past year, according to data from CoStar Group reported by the WSJ. Even nearly a year after many plants reopened, demand has been so consistently high that the entire supply chain has been unable to catch up.
Despite the headwinds, multifamily projects costing over $50M are projected to deliver at a 40% higher rate this year than last, according to research from Dodge Data & Analytics reported by CBRE. Some developers have simply increased their materials budget by as much as 20%, CBRE reports, but others are at risk of running out of even the extra money they normally set aside in case of cost overruns, the WSJ reports.
Though the price to hire contractors for large projects has gone down due to a lack of new construction in the office and retail sectors, there is no reason to expect a reversal of the trend in material costs in the near term, since no end to the supply chain backup is in sight, the WSJ reports. Some developers that can get their hands on enough lumber to complete their projects are accelerating their timelines to head off further price jumps.
Eventually, multifamily and even the seemingly invincible industrial sector will be unable to project enough of an increase in rent to offset construction costs, which could lead to a large-scale slowdown in development if the current pricing environment persists another year, CoStar analysts told the WSJ.