Like many industries across the nation, affordable housing developers are experiencing supply chain challenges, labor shortages, as well as rising construction costs.
“The shortage of sufficiently skilled labor is the largest challenge we currently face followed closely by disruptions to the supply chain, both of which are contributing to escalating construction costs,” says Caleb Roope, president and CEO of Eagle, Idaho-based The Pacific Cos.
Roope adds that every development The Pacific Cos. is building right now is facing or will face one or more of these problems. The most common material delays for him currently are electrical wiring, doors, cabinets, and plumbing supplies. He adds that as a general contractor, his firm also is observing its subcontractors not having the ability to maintain sufficient labor to execute the work.
Jeffrey Kittle, president and CEO of Indianapolis-based Kittle Property Group, says his firm is having similar issues.
He says key material suppliers—from cement siding to cabinets—are prioritizing the hot single-family market over multifamily.
“Cabinets are the latest where we have used national brand materials for years, and these suppliers have openly told us they are routing their available products to large single-family groups and cutting back or not shipping at all to multifamily as demand is outrunning what they can manufacture and supply,” he says.
In addition, Kittle notes that subcontractors are sending smaller crew sizes due to the skilled labor shortage, which is adding to build times. He also seeing longer lead times and price increases on underground utilities and structures, such as manholes and pipes.
Roope says robust engagement with subcontractors is one proactive solution that is helping in today’s environment.
“As a developer and general contractor, we have actively engaged our subcontractor base of over 1,000 companies to better prepare them to execute our workflow. We have focused on their business models and helped them manage the work they commit to. We have set up special payment plans so that they have less financial pressure and can focus on managing the work,” he says. “We have actively kept in front of them our future projects so that they can see we are a sustainable source of opportunity. The days of running auctions alone (i.e., the bid process) are over. Success in this market requires a different approach entirely.”
Kittle is implementing some additional solutions, such as overcommunicating with all trade partners—two times per week with site team schedule updates; paying some trades, such as framers, every two weeks; and utilizing the off-site framing of wall panels that are shipped to sites to speed up the framing process.
Developers also are facing hurdles on the operating side of the business.
“The insurance market is basically a complete disaster, resulting in significantly higher premiums in best-case scenarios and an inability to obtain coverage in the most extreme situations,” Roope says. “With the size of our portfolio, it was always more efficient to have one master policy. Now, we have broken up our entire portfolio and sought individual policies for each property. While we have realized meaningful savings from this, we have also had to add staff to take on this work. The same labor shortages that are persisting on the construction side are also a threat for long-term operations.”
In addition to insurance, Kittle adds that he is seeing some price increases that are hampering operations, from maintenance support to the electrical supplies and gas to run power equipment. He also anticipates higher bids for lawn contracts in 2022 due to labor, gas prices, and the increasing cost of fertilizer.
Hear more about how affordable housing developers are responding to the current challenges at AHF Live, Nov. 15 to 17, in Chicago. Kittle and Roope will join developers Kristi Morgan, principal at The Commonwealth Cos., based in Fond du Lac, Wisconsin, and Rob Hoskins, managing principal of the NuRock Cos., for the “Managing Rising Construction and Operating Costs” panel discussion on Nov. 16.
For more information about AHF Live or to register, visit www.ahflive.com.