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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Builders cope with high costs


Abram Shnay poses in front of The Urban Glass house at 330 Spring St. still under construction in New York.
 (Associated Press / The Spokesman-Review)
Associated Press The Spokesman-Review

NEW YORK — Jonathan Drill is paying more for steel and concrete for the offices and warehouses he builds, and his clients — and their tenants and customers — are facing higher bills as well.

Prices for construction materials, which also include lumber and plastics, have been climbing because of demand from overseas and higher energy prices. And construction companies that might have absorbed price increases in the past are now passing those costs along to their commercial and residential customers.

“This year our clients foot the bill, but last year when they (steel prices) skyrocketed we footed the major portion of the bill because we were under contract,” said Drill, whose business is based in West Orange, N.J.

So far, it doesn’t appear that higher prices have prompted the industry to put up fewer buildings.

“I have not seen a project killed. I have just seen aspects of the scope of the project scaled back,” Drill said.

But the higher costs promise to ripple through the nation’s economy because they will become an added burden for storeowners and businesses that rent space in new commercial buildings. Faced with higher rents from developers who paid more to put up their buildings, these businesses will end up charging their customers more for goods and services.

“There’s no question. These costs have to get passed on,” said John Cefaly, vice chairman of Cushman & Wakefield, a commercial real estate brokerage based in New York.

The higher building material prices have also pinched single-family home builders.

“We see it in lumber, concrete, insulation, drywall and vinyl,” said Jason DeBoer, co-owner of DeBoer & Gabriel Builders Inc., which specializes in single family home construction and remodeling.”Every week we see memos (from suppliers) of price increases of 5 percent to 10 percent.”

The higher prices have made it tough for DeBoer’s Burlington, N.C., company to stay on budget. At times, he absorbs the costs.

“When you set a price on the home its hard to stick to the price. Often the contractor or homeowner is the one who suffers through this,” he said.

The run-up in construction costs is tied to a variety of factors. Higher crude oil prices have made the delivery of goods more expensive and, since oil is used to make plastic pipes and vinyl siding, they’ve also driven up the costs of those products. Steel and concrete have risen amid shortages created by strong demand from overseas markets, especially China.

In December, steel prices were up 4.2 percent from the previous year, while plastics were up 20.6 percent, according to the most recent data collected by Jim Haughey, director of economics at Reed Business Information. Cement was up 12.3 percent and gypsum wall board was up 15.3 percent from December 2004.

Haughey believes the higher material costs contributed to the increase in construction spending last year reported by the U.S. Commerce Department — it wasn’t just that more projects were being built, it was also that they cost more. “Generally, the increase in various costs accounted for half of the rise in spending,” he said.

Spending to construct homes, offices, highways and other building projects totaled a record $1.12 trillion in 2005, up 8.9 percent from the previous record of nearly $1.03 trillion in 2004, according to the Commerce Department.

“The price increases are widespread,” said Stephen Hulston, regional manager at Howard S. Wright Construction Co.