In December, developer Joe Cordaro received bids totaling $6.95 million for an apartment and commercial project planned on Eighth Street in West Des Moines. 

Three months later, the project was rebid. The cost? $7.72 million, an 11% increase from the first bid.

“The cost changes were insane,” said Cordaro, principal of West Des Moines-based Benchmark Real Estate Group. “If developers can’t absorb the costs, we have to go back and reengineer the plan to cut that cost out.” 

The huge spikes in material costs for residential and commercial projects are affecting all sectors of the nation’s construction industry. Between April 2020 and February 2021, construction costs for nonresidential projects have increased 12.8%, according to the Bureau of Labor Statistics. The National Association of Home Builders reports that in the past year, the cost of a typical single-family house has jumped more than $24,000.

The increased costs aren’t limited to just one type of construction product. The whole gamut is affected. In late March, the price of lumber per thousand board feet was $1,032, a 171% increase since March 2020, according to Random Lengths, which provides market reporting on the wood products industry. Before the pandemic, the price was $381.

The price of a structural steel tube was $3,800 a ton in March, double its price in January, according to Casey Port, a vice president in construction for Hubbell Realty Co. In addition, prices for polyvinyl chloride (PVC) – used in pipes, water mains, vinyl windows and other materials with plastic in them – have jumped 270% in the past year. Drywall costs are up 20%, insulation costs are up 10% to 20%, and rebar costs are up 30%. 

“Everything is at an absolute all-time high,” Port said. “If you just look at lumber, prices have fluctuated over the past five to 10 years. It’s a commodity; it’s expected. Prices now are off the charts.”

Numerous things have caused the increased prices in materials, Port and others said. A sampling includes:

• The pandemic, which prompted lumber mills and manufacturing plants to either shut down or reduce production to provide employees safe working conditions and to prepare for anticipated declines in product demand. Instead, demand for the products, particularly lumber, increased and mills and plants have been unable to keep pace.

• Weather events like the August derecho in the Midwest and the crippling February freeze in Texas and other Southern states shut down plants that produce the chemicals used in plastic products. Some of the plants are not yet operating at their pre-storm levels.

• Increased demand for materials to build new houses as well as distribution and data centers for companies. Amazon and its competitors have stepped up construction of warehouses and distribution centers to meet the e-commerce spike. The increase in construction has gobbled up materials, pushing up prices because of the demand. 

• Transportation slowdowns, both in shipping and trucking. It is taking longer to get supplies from countries in Asia and elsewhere, and the recent six-day blockage of the Suez Canal caused even more shipping delays. The U.S. trucking industry is experiencing a driver shortage causing delays in deliveries.

“It’s a little bit of a perfect storm,” Port said. “It makes projects a little more difficult to launch.”

Some suppliers have begun putting limits on the amount of material contractors and others can purchase at a time. Orders that previously took a couple of weeks to fill now take a month to three or more months to fill, suppliers have told their customers.

The delays in getting materials and the increased costs have caused some developers to pause or shelve projects.

“Some of our clients don’t have a choice but to move forward with their projects,” said Mike Tousley, executive vice president and general manager of Weitz Co., a Des Moines-based general contractor. “I think some projects, though, are in jeopardy of being put on hold for some period of time until this volatility settles and/or prices come back down.”

Impact on local companies

Mark Cook, owner of West Des Moines-based Cook Plumbing Corp., has been in the plumbing business for over 40 years. His company has weathered numerous economic expansions and recessions. However, the sharp upward spikes in prices coupled with limits on the amount of products that can be purchased at a time is a new experience, he said.

“This is the highest increase in material costs I’ve seen, ever,” Cook said. “We don’t want to, but we have to raise our prices to reflect the price increases we’re experiencing.”

Over the years, Cook Plumbing has bought its supplies in bulk and has gotten price breaks for the large purchases.

That’s currently not possible with many items, said Scott Smith, Cook Plumbing’s general manager. Frequently now, price breaks aren’t offered on materials bought in bulk. Limits have been placed on how much can be purchased of some items, he said.

“Supply houses could buy as much as they wanted, and now they’re on allocation of 60% of what they bought last year,” Smith said. “We used to buy a truckload of pipe at a time, and now we can’t do that anymore.”

In addition, there are delays in getting supplies or equipment. It now takes up to 15 weeks to get water heaters and up to three months for some plumbing fixtures, he said. Previously, the company placed orders a week or two before items were needed. Now, orders are being placed at the start of projects, he said.

At times when orders are delayed, substitute fixtures are temporarily used, Smith said. “We’ve had some homeowners say to finish up just one of their bathrooms and they’ll wait to get the other finished when the rest of the parts come in.”

The soaring costs of materials is prompting officials at Kum & Go convenience stores to review plans for new stores before moving forward. The Des Moines-based retailer plans to build 40 to  50 new stores in the Midwest over the next two years. However, the cost to build is now 5% to 15% higher than originally estimated.

“It’s not stopped us from building, but it’s certainly making us pause and rethink things and maybe reevaluate if there are ways we can trim costs on the project,” said Scott McGee, Kum & Go’s director of site development and construction.

For example, Kum & Go often puts in more parking spaces than are required by local ordinances. In an effort to cut costs, the retailer may put in just the minimum spaces required, McGee said.

Kum & Go is also attempting to order materials needed for new stores long before construction begins. 

“You see a number of builders like ourselves trying to get supplies for projects to get us through the end of the year,” McGee said. “That’s also contributing to the shortages and higher costs.”

Low interest rates fueling demand for new houses

In the first three months of 2021, 1,023 residential building permits were issued in 13 Des Moines-area communities and Polk County, a review of city records shows. One-third of the permits were issued in March. Some city officials have said the first quarter of 2021 has been one of the busiest on record.

As long as interest rates remain at or near historic lows, homebuilders don’t see demand for new houses subsiding in 2021 even though costs for the structures are climbing.

“We can’t get houses in the ground fast enough,” said Jenna Kimberley, vice president of Ankeny-based Kimberley Development. 

The low interest rates coupled with the low inventory of existing houses for sales has consumers turning to newly constructed houses, she said. 

The conditions are not unique to Central Iowa; it’s occurring nationwide. In March, 1.73 million new residential building permits were issued, up 30% over March 2020, according to the U.S. Census Bureau. 

As with commercial construction, the demand for new houses has fueled price hikes in lumber and other housing materials. The increased costs have caused the prices of new houses to also jump. 

“A house we built in 2019 and are building today, with the same square footage and same specs, costs $50,000 more,” Kimberley said. Suppliers are only locking in prices for 15 days, which means homebuyers have to quickly make decisions on whether to purchase a new home, she said.

How long will price spikes last? 

Cordaro, the West Des Moines developer, and others expect the cost of materials to continue to rise through much of 2021. 

“I think we’ll see some relief at the end of the year, but I don’t think we’ll go back to what they were in March 2020,” Cordaro said. “There’s very little economic incentive to flood supply to bring the price down, at least to the point that it was at.”

Hubbell’s Port said he’s talked recently with several national suppliers as well as those locally who also believe material costs will remain high throughout much of 2021. That likely means some developers may put projects on hold until 2022 or shelve the projects indefinitely, he said. 

Tousley, of Weitz, agrees.

“We’re involved in some multifamily [developments] and I’m concerned that some of those owners are not going to be able to move forward with the projects because they can’t make the [financials] work,” he said. “I think we’re going to start to see some projects get back-burnered … until some of that price correction can occur.”