Struggling to Budget Amidst Rising Material Costs

From on September 16, 2008 in General Remodel

moneyIt’s no secret the building industry has been struggling among the depths of a sluggish economy and the fearsome foreclosure crisis. Yet another thorn in the side of the building industry has been the rapid rise in the cost of building materials with which to do what work has persisted. You would think that less demand would bring down supply costs. But it’s a global village, as they say, and demand for materials is not sluggish everywhere.

According to a recent article in the Boston Business Journal, high demand in China and India plus record fuel prices (especially diesel) are the two forces driving a dramatic rise in material costs. How much is dramatic?

  • Well, in the industrial sector (primarily materials for highway and street production), costs have risen 19 percent in just the last year.
  • Other numbers are 10.4 percent for nonresidential sector (office buildings, etc.) and 5.9 percent for single-family homes. The residential sector was saved somewhat by a drop in some lumber and gypsum (drywall) prices.
  • Still the price of gypsum, which dropped nearly 14 percent over the last year, is almost 25 percent higher than it was five years ago.

Prices are climbing so high and fast that they are forming a rain cloud over the building industry. It’s hard to predict an end to the storm with ever-decreasing oil supplies. So what resources do we have? It’s hard to say. First of all, I can already see how rising costs have sparked a move away from new construction and into renovation. While renovation may increase labor costs, it can cut material costs in half. This is good news for remodeling contractors, who are surviving while empty lots stay empty.

Nonetheless, high material costs have an effect on remodels. While contractors who are vying for business in a slow market will eat some of these costs, they will pass as much on to the homeowner as possible. I wish I could give some easy solution to you homeowners struggling to budget your remodel, but it is a difficult problem. Two things I will say: try to keep it local and wrestle the numbers.

By Keep it Local I mean try to use local or regional materials if you can. I know how hard this can be. I live in Oregon and I frequently see logging trucks carrying our trees away to some other where while I build local houses with Canadian lumber. I’m no expert in Import/Export and Shipping, so I’ll not argue about this. It’s just a sad observation. Yet there are often local opportunities…my brother-in-law recently had a house built in the Austin, TX area. He paid an amazingly low price for the stonework covering three sides of his home. When I asked how that could be, he explained that it was Texas limestone, mined just a few miles away.

By Wrestle the Numbers I mean to compare contractors’ markup on materials when you’re in the hiring process. You may even find contractors who do not markup material costs. You may think this quite the find, and it may be, but often these are just a guy and his truck who may not have the resources to finish the work in a timely manner and may not be reputable. Markups will vary however and you can take the time to number-crunch and figure on your best deal. Be sure not to let money be your only reason for hiring a contractor. Always check references and deal locally. A good reputation and a familiar name are often worth a little extra money. You can also work to get a flat-fee contract instead of a percentage markup. This may be an incentive for your contractor to save what money they can on materials. However, a reputable contractor will do this anyway.

Oh, and one more thing, you can always drive less and conserve energy at home. Save yourself some time also by talking to pre-screened, local contractors right now.