Home builders across Canada are getting hit by a string of supply-chain disruptions, resulting in widespread product shortages and explosive costs for the industry.
In some cases, home construction is months behind schedule as developers struggle to source everything from lumber to PVC pipes, insulation to windows. Builders are also holding back on presales, unable to accurately price their homes too far in advance, given that material costs can fluctuate wildly on a daily basis.
Some have resorted to using “escalation clauses” in their contracts with buyers to account for potential price hikes. Ultimately, the situation is adding tens of thousands of extra dollars to the typical new home – a cost that is hitting buyers’ wallets at a time of voracious demand in the market and affordability concerns.
“The whole supply chain is out of whack,” said Matt McCurrach, president of Homex Development Corp. in Kamloops, B.C.
“It’s getting worse and worse every day,” added Sue Wastell, president of Wastell Homes in London, Ont. “Literally every day, we’re finding out something else is not arriving when it was scheduled to. … We’ve never seen anything like this.”
After a brief slowdown when COVID-19 hit, residential construction is booming in Canada and the United States. Many homeowners have put their pandemic savings toward renovations. With so much demand for anything home-related, manufacturers have struggled to keep up.
Lumber is a prime example. Production tumbled last year as COVID-19 escalated. Prior to that, a number of B.C. sawmills were shuttered, owing to anemic prices and lower log supplies. Now, the industry is playing catch up, with lumber prices surging more than 300 per cent from a year ago.
On lumber alone, the cost of building a 2,600-square-foot home has risen by about $40,000, Ms. Wastell said.
Under normal circumstances, she would release upwards of 50 homes for presale at a time. That’s ebbed to between four and six, given the lack of clarity on what her construction costs will be.
“The supply levels of availability are really shrinking,” she said.
Curtis Mercer, the head of K & P Contracting Ltd. in St. John’s, said costs are up roughly $20,000 for a 1,200-square-foot home. Because of price changes, he’s amending his contracts three or four times before they reach buyers.
“There are times when I feel bad offering prices to some of my clients, because they’re outrageous,” he said. For certain items, “it’s extremely overpriced, in my opinion.”
It goes well beyond lumber. For Mr. Mercer, the biggest source of delays is plumbing fixtures. For Ms. Wastell, there were no electrical panels recently in London. And for Mr. McCurrach of Kamloops, it’s especially tough to find engineered materials, such as floor joists and roof trusses.
“Quotes are only good for seven days, and you can’t even lock in pricing at this moment,” said Mr. McCurrach, who’s currently building a 31-unit condominium. “Until we can lock in every number, we won’t start selling.”
For consumers, the impact is clear. The price of a new home shot up 7.9 per cent in March, the largest 12-month gain since 2007, according to Statistics Canada data of contractors’ selling prices. Prices rose in all 27 metropolitan areas that were surveyed, paced by Ottawa, up 17.3 per cent.
Even so, buyers are undaunted. Statscan cited lower mortgage rates, remote work from home and the desire for more space as factors spurring demand. And with fewer presales up for grabs, that’s creating more competition, the agency said.
Ms. Wastell said between 70 per cent and 80 per cent of her buyers are coming from the Greater Toronto Area, a trend that predates the pandemic. “People are buying things without ever going through a model home,” she said. “There’s a ton of pent-up demand.”
Still, there is trepidation over how much the consumer can bear and the extent to which developers are willing to absorb some of the costs. Kevin Lee, chief executive officer of the Canadian Home Builders’ Association, said some developers are building less than they otherwise would, on account of supply and cost pressures.
Mr. McCurrach said his condo project in Kamloops, which is set to begin framing in July, should proceed as planned. But with costs escalating so much, that’s not guaranteed.
“If it becomes unviable to do the project, then we’ll have to stop,” he said. “I don’t think we would be the only ones.”
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