SLO County Housing: Supply chain issues slow home construction

Building homes of all kinds is expensive in San Luis Obispo County — but local experts say there’s no single reason home building is so expensive.

“California is the #1 state in the country” in terms of housing market volatility, said Lindy Hatcher, executive director of the Home Builders Association of the Central Coast, and this is particularly evident on the Central Coast.

In California, “If you raise the price of the house by just $1,000, you’re putting the price on the most people,” Hatcher said. “That’s a stat we don’t want to be No. 1 in.”

Hatcher said keeping building costs in balance became more difficult in the years following the top of the Covid19 pandemic.

Supply chain issues weigh on homebuilders

Ongoing supply chain delays and rising building material prices are among the most acute issues facing builders, Hatcher said, adding that a key issue is lumber production and distribution.

Hatcher said it’s a “basic supply and demand” problem, resulting from the first coronaviruses linked blockages.

“At the start of COVID sawmills reduced production, which was really unfortunate,” Hatcher said. “They didn’t know if housing (construction) was going to stop or if it was going to keep building, and until we classified everyone as essential employees, they reduced their production.”

Factories also reduced their third shifts, Hatcher said, and in many cases never reinstated those shifts, putting a permanent damper on lumber production.

“As prices began to rise, (the mills were) doing banking,” she said. “Why would they start their shift again and pay these employees when they are already making money from the wood?”

Local lumber and house building suppliers such as Hayward Wood in San Luis Obispo have had to balance between keeping enough product in stock for buyers’ projects and setting aside inventory to cover potential supply chain disruptions, said Hayward Regional Manager Rudy Lockhart .

“When COVID first broke out, most of our industry looked at that and said, ‘Oh, we’re entering another (economic) downturn,'” Lockhart said. “Everyone … said, ‘Let’s step back, because we don’t want to build up a lot of inventory and (then) stick to that.’ ”

“Our industry hasn’t slowed down,” he said. “Actually, we accelerated.”

This year, Lockhart said, vendors and developers have experienced a six-month string of high prices and distribution delays.

It can take eight to nine months for the lumber or windows to arrive at a job site, Lockhart said, adding that the time between placing an order and delivering materials is three times longer than before the pandemic.

Greg Nester, owner of Greg Nester Construction and Development in San Luis Obispo, said supply chain issues can affect all aspects of construction a house, from more common components such as appliances – which he says can take up to 14 months to deliver – to more specialized or high-end components, such as the type of wood that goes into a high-end home.

“All inventory … exhausted from the pandemic and lack of production,” Nester said. “They physically manufacture products for you as you order them, rather than removing them from inventory and shipping them as they become available.”

Certain wood and glass products, such as doors, windows and cabinets, were placed on individual buyer allocations because suppliers could not afford to produce a surplus, Lockhart said.

“Even though we had the ability to sell more product, we couldn’t get the materials to do that because we were on an allocation,” Lockhart said.

This adds to the time and money needed to build a house.

According to data from the National Association of Home Buildersthe volatility of wood production means that the price of building a single-family home has increased by over $14,000 during soaring lumber prices.

Nester said current construction prices are “the highest I’ve ever seen” in his 39 years in the business, increasing the level of risk his company must assume when tackling new developments.

Demand for building materials is cooling nationwide, which will likely ease some of the supply gaps, Lockhart said.

However, the future of pricing is still uncertain, he said.

The cost to get “a piece of wood out of the forest, through a sawmill, onto a truck, into a lumber yard, and delivered to a job site…has gone up in the last two years,” he said. he said, “and those costs haven’t gone away just because demand has eased off a bit.

Nester agreed.

“Supply and demand drove the price up dramatically, and it never came back down,” he said.

“It’s going to take some kind of recessionary correction to bring supply and demand back to where it’s more acceptable,” Nester said, in line with economic cycles.

Manufacturers: Costs, regulations increase production times

While “everyone wants a silver bullet” to solve SLO County’s housing cost problems, Hatcher said, one of the most direct ways to reduce the cost of building homes is to reduce the fees that developers pay for new developments.

“You tax what you want less,” she explained. “You tax cigarettes because you don’t want people to smoke. You would tax gasoline when you want to promote less greenhouse gases, less emissions, fewer people driving…but you would never go to a grocery store and tax them, because they provide food and people are hungry.

While affordable housing developments are generally exempt from most development fees, Hatcher said, for-profit developers are still subject to fees and taxes.

These fees can increase the price of building a home by about 25% before a square foot of foundation has been laid, she said, stunting growth.

Hatcher pointed out Grover Beach recently adopted site zoning practicesthat allow for taller and denser constructions, as another way to save money on building and buying homes.

For-profit builders are “not the problem,” Hatcher said. “We provide housing that is also needed.