HOUSTON – (By Ken Pinto for Realty News Report) – As home sales in Texas and beyond continue to outpace the homebuilding industry’s ability to build, demand has also stimulated tremendous bottlenecks across the construction supply chain, resulting in skyrocketing costs, diminished material availability, and overarching delivery days.
According to the National Association of Home Builders, building material prices in March 2022 increased 20.4 percent on a year-over-year basis and have increased 33 percent since the start of the pandemic.Beyond the publicized 200 percent-plus increase in lumber, copper wire is up 565 percent, aluminum wire up 207 percent and steel plate is up 89 percent.
Supply chain strain is extremely broad and moves well beyond material expenses. Allow me to illustrate:
Houston is home to 92 percent of U.S. production of petrochemicals that were crippled by the power outages and subzero temperatures that took hold of the state in February 2021. Texas’ oil industry is,more than a year later, just beginning to experience relief.Oil isn’t exclusively an energy source for heating and fuel. Numerous petrochemical by-products used in construction include paint, acrylic stucco, plastic pipe, house wrap, vinyl windows, grout, composite countertops, switch cover plates, toilet seats, roof shingles, and anything made with an adhesive (wood flooring, plywood, composite siding, cabinets, and doors). Though capacity has been restored to the petrochemical plants, an allocation still exists to sort through the backlog and continued high demand.
Material price increases are further exacerbated by extensive acquisition lead times. What used to be predictable is no longer. The previous lead time for window orders was 7-10-days and now, its 12-30 weeks. Garage doors could be turned around in one day, but now, three-months. Therefore, new home construction, previously plotted from foundation to finished across a 95-working days or six-month timeline, is now 8-12 months.
Resolution of a single bottleneck alone won’t change the end result. Efforts to solve them are heroic, but none will be successful until past approaches are altered to create a more sustainable path – which unfortunately cannot be done overnight. Other connected concerns include:
Even against a cascade of challenges facing them, some builders are successfully cycling home construction in 2022 the same as they did in 2019. The difference? In addition to doing things that make them a better customer (fast pay, easy to deal with, polite, no change orders post-submission) they are communicating SKU (stock keeping unit code) demand upstream and securing inventory well in advance of needby asking dealers to set aside inventory for them as it comes in, thus ensuring they have the products they want, when they need it.
I’m often asked, “When will everything go back to the way it was?” My guess is never.Our industry has changed and the home builders with the best supply chain management strategies will have advantage over those who continue to order only when they need it. The victorious will be those that study timelines and delivery schedules, strengthen supplier and dealer relationships, and predict consumer product demands using historic data, to forecast and plan ahead.
File: The Supply Chain Crisis
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Photo: Courtesy Port of Houston
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