NAVIGATING A NEW NORMAL

by rachel hagenbaugh

In 1992, Hurricane Andrew stormed through eastern Florida, ripping apart thousands of homes and leaving more than 250,000 people homeless and 82,000 businesses damaged or destroyed. It was the state’s second costliest natural disaster (Hurricane Katrina was No. 1) and resulted in shortages and rises in the costs of building supplies, particularly plywood and shingles. “For a month, month-and-a-half, you couldn’t get those plywood panels,” says Myers Homes president Robert Myers, whose career in the homebuilding and remodeling industry spans more than 35 years. “That’s the only comparable situation to what we’re facing now, and that was short-lived.”

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Seeing Through Supply Shortages

For today’s homebuilders and remodelers, the material shortages run the gamut, from lumber and aluminum to glass. This, of course, impacts the availability of a range of products, including flooring, windows, and appliances such as refrigerators and dishwashers.

“There’s a massive inflation environment that is just now being felt,” Myers says. “Lumber went up more than 300%,” he says. “In 2020, a lumber package for a typical home was $30,000 to $40,000. Last year, that same package could have been $120,000.”

This, of course, has led to an overall increase in the cost of new builds and remodeling projects. Bo Knez, president of BR Knez Homes, a residential market rate developer in Painesville, says two years ago his company offered starter homes at $250,000. Now, they’re $370,000.

“I don’t think the costs are going to go down. I think they’re going to continue to go up, but not at as rapidly of a pace as we’ve been seeing,” he says, adding that he has not heard anything from his suppliers regarding increases in availability or decreases in prices of materials.

“The cost of lumber did go down, but as soon as it went down, it went right back up,” says Brett Dawson, division vice president of Payne & Payne Builders in Chardon. “Depending on the different analysts you talk to, it’s interesting because it was falling, and I was trying to get a large project bid. I was talking with two different lumber guys, and one was like, ‘I don’t want to bid it until Monday because it’s going to fall because it’s still falling.’ And the other guy said, ‘Let’s lock this in today because it’s going to go back up.’ So no one knows. They say it’s going to flatten, but it hasn’t quite yet. Even when it does, it’s not going to flatten to the point where it was before COVID-19. We’ll never see pricing like we did three years ago.”

Tim Lynch, sales manager for the trade/new construction segment at Gunton Corp., a distributor for Pella Windows and Doors in Bedford Heights, agrees that prices will continue to increase, noting the variety of components that go into something as seemingly simple as a window.

“You’ve got metal aluminum that’s involved in the product, and that price is skyrocketing. There have been glass shortages, which is 90% of a window. Even wood and vinyl and non-wood composite materials, we saw a lot of that come from Texas, and they’ve been having weather issues. Since the pandemic, there have been storms that have ripped through those manufacturing facilities,” he says.

“I think you will see increases in the cost of products to the end user, but I don’t know if it will be in materials as much as it will be in labor, and that’s considering production labor. Even the price of moving a product from a manufacturing facility to wherever the product is distributed is going up due to rising fuel costs and other factors.”

Although price hikes have not yet had an impact on demand, the market is changing.

“Interest rates are going up, so that will be interesting to see how that affects the market, as well as new construction. It will certainly slow it, but to what extent is really unknowable at this point,” Dawson says. “COVID-19 was a huge game-changer in people figuring out how they want to live in their homes.”

The Importance of Pre-Planning

Since COVID-19 turned the industry on its head more than two years ago, it seems that the only certainty lies in the constant uncertainty regarding product availability and costs, which inevitably results in longer lead times for projects.

“These are the longest lead times I’ve seen in my 25 years with Pella, and that’s all inclusive,” says Lynch. “It’s just not the way it was five years ago where you could sign a contract to do a project at your home, and you pretty much knew within days when that project was going to be completed. There’s just so many variables right now.”

Overall, local homebuilders are estimating projects to take an additional 30 to 60 days to complete. One big factor of the longer lead times is that it reduces the number of changes people can make throughout the construction process.

“You’re certainly seeing a reduction in the flexibility that builders have, because it takes a lot longer to get materials,” Dawson says. “Where a change could have taken three to four weeks and people could live with that, now it’s taking two to three months.”

This means that preconstruction planning is critical.

“Pre-planning is vastly crucial to what’s going on out there in the construction industry. We have many products today that are being ordered before a shovel hits the ground, and typically, that’s not the case,” Lynch says. “Pre-pandemic, we had two- to four-week lead times. We see those in the 12- to 18-week range, and some of those go much further depending on the specialization of your product.”

Perhaps one of the silver linings to the pandemic’s negative effects on the homebuilding and remodeling industry is that it has caused homeowners to plan their projects from start to finish during the pre-planning stage, which is fantastic for the results.

“Because of COVID-19 and the supply chain issues, we’re ordering everything upfront,” says Pat Perrino, president of Perrino Custom Builders LLC in Chesterland, adding that his happiest customers are the ones who pick out their furniture ahead of time with the company’s designers because they’re putting the entire house together at once — nothing is an afterthought. “Our houses are turning out gorgeous — just beautiful — and the difference is that everything is planned.”

Working Through Labor Shortages

On average, a large-scale remodel or new home build involves between 20 and 30 trades. Although labor shortages existed prior to 2020, COVID-19 certainly magnified the issue. “Becoming a carpenter or electrician or skilled laborer is something that is going to be in huge demand during the next two, five or 10 years,” Lynch says. “There are so many jobs out there available for trades or skilled laborers, and we do not have a resource pool to choose from right now.”

So what’s causing these labor shortages? Across the board, homebuilders and remodelers attribute the issue to a lack of understanding young people have regarding the benefits of a career in the trades. At one point, Knez says, there was a huge push for high school students to attend college after high school — no one was educating students about attending a vocational school, learning a trade and turning it into a career. Lynch adds that although he commends the number of high school students who are graduating and attending college, it needs to be accepted that college is not for everyone. In fact, 32.9% of undergraduates do not complete their degree program.

“There are trade jobs out there that are well-paying jobs. There are people who start in a trade who become such an expert that they decide to open their own company and hire people and train people in their likeness so they become business owners,” he says. “There’s not a pile of debt you face at the end of four years. You’re earning income every year after you graduate from high school. And you will continue to earn an income because you will continue to be needed.”

Knez, who’s been a part of the homebuilding industry for nearly 40 years, describes his trade as a very rewarding career, and he couldn’t imagine doing anything else.

“To be able to take a raw piece of land and provide [a home] for a person, a couple or a family, not only from the time they move in, but for the next 100-150 years … It provides a place for the family to gather, to eat together and raise their children. It’s a good thing,” he says. “I see young men and women who are getting in here now and making a very strong living without student debt, and they have more work than they could possibly handle.”

Coming to Cleveland

One of the biggest effects COVID-19 had on the region’s homebuilding and remodeling industry is the influx of people moving to Northeast Ohio from Illinois, New York and California.

“We’re seeing a lot of out-of-state people coming into Cleveland surprised by the amenities that we have and the price point that these homes are available at and find it a great place to live,” Knez says, adding that he’s also seeing a lot of the rubber band effect, where people who moved out of state are moving back to Ohio. That’s true for all age demographics, from millennials to people in their 60s.

So what’s attracting people to Cleveland?

“The different responses in states regarding lockdowns had a massive effect on how people used their homes,” Myers says. “That brought a reawakening of people’s interests in making their homes nicer to be in or finding cities with more amenities that reflect their lifestyle. On the national scale, it caused consumers to move out of some states and into others.”

Also as a result of the pandemic, many employees now have the option to work 100% remote, so their living options are not limited by where their company’s offices are located. Those who move to Ohio from out of state boast of the friendliness of the Midwest, Knez explains. They appreciate Cleveland’s cultural diversity, the arts district, sports teams, Cleveland Metroparks and Lake Erie. And, while Clevelanders are feeling the effects of the pandemic and seeing housing prices increase, Knez notes that they are still at a reasonable price point for those coming from larger metropolitan areas such as Chicago or New York City.

“I think we sometimes take for granted what we have available to us in Cleveland, and if you’re an outsider looking at it with a fresh set of eyes, you’re not accustomed to looking at all of these things,” he says. “It’s just about finding a great place to live.”