ATL Standard

It is the dream of many American families to not only own a home but to see that home grow from the foundation up, which is why many choose to build a new home rather than purchasing an existing one. 

Before the COVID-19 pandemic, the resources for homebuilding flowed abundantly and at reasonable prices. These days, prospective homebuilders are lucky if they can surmount the cost of lumber alone. 

Reports show that the price of lumber increased by 300% this spring compared to last year. Lumber prices reached an all-time high on May 28, costing $1,515 per thousand board feet, but have since declined.

Ken Warlick | GAHBA

The Georgia Association of Realtors reports that year-over-year home sales prices have increased 20%, with the median sale price of a Georgia home increasing 23% since last year to $240,000. Houses in Fulton County have increased in price by an even steeper margin, climbing by 29.4% since last year to $433,500.

Is inflation an adequate explanation of these prices, or is that an oversimplification of something more complex?

Ken Warlick is the chief operating officer and vice president of communities for Harrison Homes in Chamblee and president of the Greater Atlanta Home Builders Association. He told ATL Standard that although inflation is a star player in construction costs as availability fluctuates and the cost of the materials needed for the building of a home continues to increase at historical levels, the answer is far from simple. 

"We are getting weekly notifications from our trade partners and suppliers of materials increases that we cannot avoid," Warlick said. "We are also receiving notifications weekly of discontinued items or back-ordered items and, in most cases, we cannot find alternatives or be given a specific date of expectation of the products."

Labor shortages, Warlick said, are another major contributor in homebuilding costs that hasn't received the same spotlight as the shortages and costs of raw materials like lumber. 

"The majority of construction positions are blue-collar, manual-labor jobs that require skill and, most importantly, effort," Warlick said. "There was already a shortage of construction workers prior to the pandemic. We were hopeful that with COVID, and the fact that construction never stopped during this time, that we would be able to acquire and fill a lot of the missing positions from workers from those industries that were not able to operate during COVID. That did not happen."

Despite the Georgia construction industry being busier than ever, the field's workforce was decimated as the pandemic progressed and federal unemployment assistance kicked into effect. This brought bigger unemployment checks, Warlick said, than local construction companies were able to write. 

Adding to the clamor are the people across the country who spent a year-and-a-half pent up in their homes, having ample opportunity to look around and realize they want more out of their living space, especially if the pandemic had spurred a lifelong decision to work remotely. 

"They realized they needed bigger, better and newer homes, and that catapulted the residential construction industry," Warlick said. 

Warlick stressed the importance of remembering that builders are not price-gouging or marking up homes to gain unprecedented margins and profits.

"We are truly trying to provide a home for anyone who is able to achieve the American Dream," Warlick said. "Most builders I know that struggled and did everything they could to survive through the recession in 2008-2010 have learned and are operating with extreme caution right now because we have lived through it and know how easily it can all be taken away."

Companies with skin in the residential construction industry are caught between a rock and a hard place, grappling constantly between keeping homes affordable with keeping their business numbers in the black. 

"We understand that we have to try and do all that we can to keep costs down, make homes affordable, and continue to build relationships with our community," Warlick said. "It just certainly seems as though, right now, most of the cards are stacked against us and it continues to add up."

Harrison Homes alone needs to spend about $150,000 more to build a home now than it did two years ago. The average cost to build per square foot for the company has jumped by roughly $35 per square foot in two years, $20 of which has been since February 2020. 

With major delays in permit approvals and labor shortages, longer build times add to the interest cost for the construction company's loans, forcing the company to shave off their already-thin margin or raise home prices. 

Data released by the National Association of Home Builders (NAHB) reveals that 62% of home builders have increased their prices, 59% are preordering materials, and 20% have abandoned projects altogether due to inflated prices. NAHB data also shows that 60% of U.S. households cannot afford the median price of a house, which is currently $346,577.

Regardless of inflation's role in homebuilding prices, the majority of Americans are asking one common question: when will it end? According to a poll, 88% of Americans believe inflation will continue to increase during President Biden’s time in the White House, and 83% are concerned or very concerned.

There are actions Washington could take to help appease the problem, including making smart choices in trade agreements with Canada such as the tariffs on lumber, correcting the backlog of imported goods at customs so materials can get to construction companies quicker and trimming up the red-tape mess of impact fees, ordinances, regulations and enforcements. 

"Those cost increases are passed down to the consumer," Warlick said. "That is one of my top priorities this year, trying to curb government regulations that are continuing to be imposed on builders. Most in government are preaching 'affordable' housing, all the while continuing to increase and add regulations and impact fees that constantly increase the cost to build a home."

Unfortunately, Americans shouldn't hold their breath for homebuilding prices to come down anytime soon, Warlick said. 

"We may see a small dip in costs but all that is going to do is increase demand, which we don't have [supply] available, so the cost of the home is going to remain at levels we are seeing now," he said. "This is a supply-and-demand scenario. We are telling all of our homeowners who are on the fence and wanting to wait for prices to come down that prices are not coming down.

"Lumber is coming down, but the price of a two-by-four is not going to fall from $10 each to $5 overnight," he added. "There will not be the same homes being built now, sold at $150,000 less this time next year. That's just not going to happen. ... Prices will continue to increase, just maybe not as rapidly as we have seen in this last 12-month span. Now is the time to buy new."