Materials Shortage Hindering Builders
Stan Seligman saw it coming.
The Grand Junction, Colo., builder had seen his production jump from 35 houses in 1996 to 70 houses in 1997. In 1998, he built 200 houses, and he knew supplies of certain building materials could run thin.
So in mid-December, Seligman, who also operates a lumber yard, ordered a year’s worth of gypsum and mineral-wool insulation. He even stocked up on certain specialty nails.
“I said to myself, ‘If I bring on subdivisions like I’m projected to do, something’s got to give,’ ” the veteran home builder says. “So we committed to purchase four or five truckloads of gypsum a month for the next 12 months and 50 truckloads of insulation.”
Now Seligman’s Great New Homes Inc., one of the fastest-growing building companies in the country, is in great shape, while his colleagues are “starting to feel the pinch.”
“In the next three to four weeks, it will be hell on Earth around here, and we’ll be sitting on two truckloads extra,” says Seligman, who promises to share the excess with his colleagues.
If he makes good on that pledge, Seligman’s competitors will have two reasons to be thankful--his largess and the fact that they’re coming late to a shortage that has already slowed their counterparts in much of the rest of the country.
According to the National Assn. of Home Builders, the scarcity of two key building components--gypsum, better-known as wallboard, drywall and Sheetrock, and mineral wool, sometimes called fiberglass--is stretching out delivery schedules by more than a month for some builders and putting upward pressure on home prices.
The Shortages Are Widespread
Although reports of shortages are most common in the South, they are widespread, with builders of all sizes and in all regions reporting deficits.
And they couldn’t come at a worse time for contractors, who, already crippled by a severe shortage of skilled labor, are heading into the peak of the home-building season, the warmer weather period when they are most productive.
The shortage of gypsum is creating the most problems for the greatest number of builders, says builders’ association economist Dean Crist. But fiberglass insulation is also becoming more difficult to find.
More than half the builders polled in a March survey reported drywall shortages, and most experienced price increases. That’s up from 16% only nine months earlier. And 41% are having a tough time locating insulation, as opposed to just 12% last June.
Furthermore, though half reported that drywall shortages haven’t had an impact on their ability to meet promised delivery dates, the other half said they are being forced to delay closings.
About one-third say they had to extend deliveries by one to two weeks, and one in five said delays are running three weeks. Eight percent are being delayed by four or more weeks.
Why the shortages?
“The easy answer is that demand has outstripped our capacity to produce,” says Jerry Walker of the Gypsum Assn., a Washington-based trade group that represents the 15 U.S. and Canadian manufacturers of drywall.
Together, these companies operate nearly 90 plants on both sides of the border. And last year, they shipped about 30.5 billion square feet of drywall. But they still haven’t been able to keep pace with home builders, who have been putting up houses at near-record levels.
“Our plants are running full-out, 24 hours a day, seven days a week,” the industry spokesman says. “But we just can’t crank it out fast enough.”
Some builders complain that gypsum producers are purposely withholding production to drive up prices. “With the market so strong the last couple of years, you’d think they’d be ready for it,” one builder protested. But others believe that given the hot housing market, the shortages were “bound to develop.”
Manufacturers, meanwhile, say they are doing all they can to ease the crisis. And so are distributors. One Southern California distributor ordered three cargo containers of drywall from Japan. The shipment took a month to reach the States and was used up in three weeks.
Makers have reopened plants closed during the last housing recession, and several have added new production lines. In addition, for the first time in nearly a decade, new plants are under construction.
Three Facilities Due to Open
Three of the new facilities are scheduled to come online later this year. But that’s not soon enough for builders like John Moorzitz of Matzel & Mumford in Hazlet, N.J. “They’re making it tough for us,” says Moorzitz, whose firm builds 300 houses a year in central New Jersey.
Moorzitz says the 54-inch drywall sheets most builders use on walls in rooms with 9-foot-high ceilings, a standard feature in some markets, are hard to get, and longer boards are even more difficult to find. As a result, his installers use smaller sheets, which means “more seams that are more difficult to blend.”
The drywall deficiency is “adding one more complication that builders don’t need,” agrees Cliff Coldwell, vice president of purchasing for the Ryland Group, a builder based in Columbia, Md.
Ryland is “experiencing tightness” and paying more for drywall in several geographic areas, most of all in Georgia, the Carolinas and Texas. The increase isn’t much--perhaps $500 a house. But when you multiply that by the 9,500 houses the company built in 1998, Coldwell points out, “it’s enormous.”
Still, Ryland hasn’t adjusted its prices to reflect the higher costs, at least not yet. Moorzitz hasn’t either. But he’s “wrestling” with the dilemma. Over the last 12 months, the New Jersey builder says, his drywall costs have gone up 40%, 25% in the last three months.
He says that eventually he’ll have to pass it on to his customers.
Ryland’s Coldwell says the shortage hasn’t lengthened construction time, “but it could, depending on availability.” Moorzitz, on the other hand, is telling his customers they’ll have to wait 12 months for their houses instead of the normal six. He hasn’t lost buyers yet because of the delays, but he’s no longer able to satisfy those who need a house quickly.
After experiencing delays late last year, Reynolds Communities in El Cajon, just east of San Diego, is “back on schedule now.” But construction director Leonard Matchniff is worried that suppliers will start rationing both wallboard and insulation to their builder clients.
If that happens, Matchniff, whose firm builds 120 houses a year, expects a 15% price increase on top of the 10% more he’s paying now. But he is even more concerned that rationing would prevent his company from building all the houses it can sell. “If it goes to allocation,” he says. “Each builder will receive only so much product and no more.”
Still, Matchniff and many of his colleagues remain philosophical. “It’s just one of the battles we have to fight,” the Southern California builder says. “We’ve done it before, and we’ll do it again.”
