Effects of Rising Costs and Construction Delays on Housing Affordability
Multifamily costs have risen 40% in one year and construction delays are getting longer. How have escalating costs recently affected affordable housing in Charlotte? The answer: $15.8M worth. Escalating costs have continued to rise at a level that put several Housing Trust Fund (HTF) approved development projects in jeopardy of closing. However, eight (8) projects were saved when the Charlotte City Council approved an additional allocation of $9.2M from the City’s Housing Trust Fund and $6.6M from its American Rescue Act (ARPA) funds. That rescue helped to keep 623 affordable homes in the pipeline.
While these issues aren’t just occurring Charlotte, the reality is housing developments all around the country are experiencing delays and escalating costs. Today, it costs a developer about 50% more than it cost three years ago according to Clay Grubb in a recent Charlotte Ledger article. Developers and builders continue to face many of the challenges that started in 2020 such as schedule delays, construction material pricing, and supply chain interruptions. However, while lumber and appliances were among the major supply chain issues in 2020, now developers are grappling with issues with accessing appliances, roofing materials, exterior finishings, insulation and electrical parts. In addition to supply chain issues are fluctuating material costs, labor shortages, rising interest rates and inflation which is at a 40-year high. Thanks to the Feds, rising interest rates as well as higher construction costs have caused uncertainty and caution in many real estate markets, including Charlotte.
Labor shortages is another plight of the construction industry, but other industries are also experiencing the same. Older generations of construction workers are retiring but not being replaced. The Association of General Contractors reports that 90 percent of construction firms have a difficult time finding workers to hire and that the industry is down 650,000 construction workers as of 2022.
As a result of all these challenges, multifamily costs have risen forty percent (40%) in one year according to R&O Construction. However, developers are obviously adapting. This is evident because housing is still being built although it is projected to slow down in 2023.
According to a National Multifamily Housing Council (NMHC) Construction Survey 76% of multifamily construction project leaders report having experienced price increases. One strategy some developers have used to mitigate the impact of shipping delays is to purchase certain items in substantial bulk quantities. But the unintended consequence of such a strategy has been the creation of higher demand for those items, resulting in higher prices. When prices for essential materials rise, it can lead to project financing costs which are all passed down to the end user, the renting resident.
The National Multifamily Housing Council’s survey also found 53% of projects had permit wait times between three to six months. An astonishing 22% of projects had to endure nine months of wait time before receiving their building permits. The same survey found 86% of projects reported experiencing a delayed start, likely due in large part to a prolonged paperwork process.
When it comes to building rental homes for low-moderate income families, these escalating costs will continue to drain more and more resources directed to “affordable” housing. Instead of doing more with less, we will be doing less with more.