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Outlook for Lumber and Other Construction Costs

Outlook for Lumber and Other Construction Costs

By Marc Padgett, President of Summit Contracting Group

February 16, 2021:

Everyone wants to know when construction costs, mainly lumber, will stabilize and resume to normal expectations.

First, let’s keep in mind there are always the ordinary cost increases throughout the year so we don’t want to confuse those with anything pandemic related. Historically, over the past few years the multifamily market has increased about a half percent per month on average.

Outside of lumber we have not seen anything out of the ordinary and are not expecting to. What has changed is the availability of some materials since many factories got behind while adjusting to how they do business. It is important to plan as far ahead as possible and order materials significantly sooner than what would have been typical prior to the pandemic.

With vaccines rolling out this year and more people returning to work, we expect a return to normal, or close to what was considered normal. There’s no way to know when that will be at this time, so we remain hopeful that supply will increase and costs will ease soon, but we also find ways to innovate and prepare for the future in case costs don’t improve as much as we’d like.

New housing starts are pushing lumber costs up.

Low supply plus high demand equals higher prices. Demand to build Multifamily is high and there is increased interest from investors in all of our Southeast markets.  

In Jacksonville’s multifamily market alone, for example, Summit currently has 8 active projects under construction, with more in the pipeline for 2021.

The end of 2020 saw the biggest gain in new housing starts since 2006. New buyers in single family, migrations from urban areas to rural towns, plus low interest rates are likely driving that. Although, even when we are talking about these statistics, that includes housing for rent as well as for single family home ownership. For new construction, it is difficult to make the numbers pencil out in constructing low density homes for rent, in the long run we don’t expect that to last. Multiple unit buildings in multifamily construction is a higher density and a better return on investment.

Consumer demands also remain high with big box store lumber sales for home improvement projects.

We navigate a tough market with relationships and buying power.

We are hoping for relief in lumber prices by June, but preparing for it to be longer. For Summit’s projects, we leverage our buying power for material orders whenever we can.

Right now we’re looking at bulk purchasing approximately $50 million in lumber for approximately 20 projects. We are also working on trusses, windows, and appliances amongst many others in this same fashion.

Bulk purchasing is especially possible due to Summit’s prototype program that allows for the ability to direct our buying power towards multiple projects at a time in lieu of single projects, as has been traditionally done for so many years. These opportunities provide Summit huge bargaining power, enabling our clients not only the ability to navigate these volatile markets and cost issues through our vast reach of relationships and buying power of many over 9,000 apartment units per year, but also to “lock in” costs for up to 6 months in many cases.

We also reduce waste where we can as part of value engineering practices in preconstruction and throughout the project.

Multifamily projects are moving forward despite increased lumber cost. 

Some developers are holding construction start dates for the lumber pricing to come down, but most are moving forward. Low interest rates for funding is an example of one of the ways developers are continuing to build now as opposed to waiting.

According to a recent article from MHN, “skeptical lenders and equity investors are expected to continue looking favorably on multifamily as one of the more durable property types.” Read the article here: https://www.multihousingnews.com/post/10-top-multifamily-financing-trends-for-2021/


We continue to monitor the lumber market and regularly discuss options with our suppliers to find the best times to purchase. This keeps us well informed so that we can produce the most accurate cost estimates for our clients. 

Current framing lumber briefs can be found on our website here: https://www.summit-contracting.com/2021-framing-lumber-briefs/