Ballooning construction costs are slowing growth in North Texas

EDITOR’S NOTE: This is the latest edition of the Denton Record-Chronicle’s newest newsletter, Your Money, Your Home, which publishes the first and third Tuesdays monthly.

With demand for housing continuing to outpace available units and commercial spaces in high demand, market watchers are looking to new builds to ease market strain. But continuing supply chain delays, construction labor shortages and soaring material costs are pumping the brakes on building projects.

Permits for new builds in Dallas-Fort Worth have been declining since August, dropping a whopping 27% in December and continuing the downward trend with a reported .9% drop in February. Those declines have come at a time when contractors have seen a 21% jump in the cost of building materials — a much steeper increase than the inflationary spikes reflected in the Consumer Price Index for the same period, which rose just under 7%.

While the COVID-19 pandemic accelerated economic pressures over the past two years across a host of industries, construction input costs have reached new highs amid Western sanctions prompted by Russia’s invasion of Ukraine.

“I’ve been in my position 20 years and I’ve talked to contractors who have been around twice as long — they all seem to say this is the most abrupt and steepest price increase they’ve ever experienced,” said Ken Simonson, chief economist at The Associated General Contractors of America.

Among the steepest price spikes have been in steel, up 74% since February 2021; diesel, up 57% year-over-year; and aluminum, up 37% for the same period. While those higher material costs have prompted contractors to increase bid prices for projects, accepted bids are typically fixed, leaving many builders unable to recoup surprise cost increases.

“Contractors generally have to put in a fixed price bid or a guaranteed maximum price at the time they start a project,” Simonson said. “They’re taking on whatever the cost of their materials and other expenses will be over the course of the project, which could last two years or longer, so they’re very exposed to price changes that they can’t pass along.”

Commercial contractors are the most vulnerable since homebuilders typically have more market power over individual buyers to pass down costs, Simonson said.

While many owners are continuing to say yes to new projects despite higher expenses, materials are still hard to come by. Seventy-two percent of respondents to an Associated General Contractors of America survey released in January said projects are taking longer than anticipated to complete.

“Very long lead times for materials is causing some changes in project design or the timeline of when owners would expect to have projects completed,” Simonson said.

Also contributing to increased build times are employment shortages. Construction employment in Texas is down 2.5% since pre-pandemic levels, short almost 20,000 jobs, according to the Bureau of Labor Statistics. There were employment gains in February but there were still more job openings than the gains, leaving unfilled positions at a time when some laborers may be seeking more flexible work options, Simonson said.

While prices are expected to eventually settle, the next few months will continue to bring uncertainty, and any future decreases will likely not be to pre-pandemic levels, Simonson said. That means residents can expect the rapid growth North Texas has experienced over the past few years to slow a little as owners and contractors find their footing.

In the meantime, “It’s important for all parties [on a project] to be in communication about any changes in price or production delays so folks have a chance to adjust,” Simonson said.

On the townOpenings, closings & new spaces to explore

Vendors and visitors made their way downtown this weekend for Denton Community Market’s opening day. The market’s 2022 season kickoff brought a strong turnout amid warmer weather and continued pandemic recovery.

Veteran-owned Patriot Sandwich Company reopened after a $45,000 “angel” donation from a North Texas resident, proprietor David Jordan told The Dallas Morning News.

By the numbers77,800 — The nonfarm jobs gained in Texas in February, according to the Bureau of Labor Statistics. The state gained over 830,000 jobs over the previous year, making it among three states that saw the largest employment increases.

29% — The increase in job postings in the Dallas metro area as of the week ending March 25, compared to pre-pandemic levels. Despite statewide job gains, some North Texas employers say they’re still struggling to keep open positions filled.

Until next time, Denton.