High costs, shrinking profits: Homebuilders talk about getting squeezed post-pandemic
PROVIDENCE − Hammers driving nails into wood, saws tearing into lumber, drills whirring through composite planks and the sweet smell of freshly cut wood filled the the Rhode Island Convention Center on Saturday, as builders from across New England converged on the JLC Live Residential Construction Show.
"Eco" materials, composite woods, insulation made from sawdust, power tools, siding and windows, windows and more windows were just a few of the things on display as builders prepared to paint walls, hang drywall and insulate mock houses.
Kym and Bob Turpin, of Bridgewater, Massachusetts, wanted to see a session on women in construction but just missed it, getting out of work too late. Bob Turpin, a carpenter, said he was impressed by all the advances in building technologies, such as tapes meant to prevent rot on exposed wood, far better than the tar paper he used to use.
The couple own a 200-year-old house and have been "doing nothing but renovating" because it needs so much work. Like many at the conference, the pair have seen how the construction world has changed since the onset of the pandemic.
For Bob Turpin, it was windows.
"You used to get a window for $200. Now it's $400," he said.
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The cost of doing business keeps going up
Tyler Brooks, an electrician, and Michael Langevin, a carpenter, drove in from Connecticut for the show. They were having a free beer as the show wound down on Saturday. While they come from different facets of the construction industry, they are seeing the same market forces in the post-pandemic market.
Before the pandemic, the median house price in Rhode Island was around $250,000. It's now up nearly $450,000. Multifamily house prices, historically at or below their single-family counterparts, have been driven even higher.
At the same time, the cost of building materials has gone up significantly, with lumber prices on a roller coaster in 2021. Add in the tight labor market, and people paying vastly higher prices for housing than they did in the past, and many are choosing the do-it-yourself route over hiring skilled labor.
Brooks said he recently got a call from someone who wanted to check a $3,000 quote for wiring a finished basement. The caller thought the quote was outrageously high, but Brooks told him no, that's how much it would cost. The man told him he planned to do the electrical work himself.
Langevin and Brooks said it seems that with new homeowners paying so much for houses, they're unwilling to pay even more for renovations.
As the cost of materials climbs, Brooks still needs to pay his people a decent wage to keep them, and yet consumers are demanding to pay less, squeezing his margins. The cost-to-value ratio of work is "out of whack," Brooks said.
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The price of bringing an older electrical system in a house up to code has doubled over the last 10 years, but the cost of labor that Brooks can charge has gone up only 30%. The rest of the increase is in materials, Brooks said.
"I'm sacrificing overhead to stay competitive," he said.
The big difference between Brooks and Langevin is what the consumer can judge. A layman can see when Langevin does high-quality carpentry work, but the quality of Brooks' electrical work is less visible, although if wiring is done incorrectly, it can result in a fire.
For Langevin, customers can be picky, especially in more expensive homes.
In a corner of the second exhibition floor, Ramon Costa was showing off his family's construction company, BPI Construction, based in Framingham, Massachusetts, which does work across New England.
Costa said his residential customers are increasingly moving from single-family homes to duplexes, where they can collect rent on a second unit.
While the median price of a house is way up, those who want a new home built are sticking to their 2019 budget estimates, which means they are building smaller houses to make up for the increased cost of materials.
In a tight labor market, how do construction companies keep their employees?
Chaos.
In a tight labor market, that's one of the main things driving Gen Z, and to some extent millennial workers out of their jobs. In a tight labor market, it's not hard to get hired somewhere else, so why stay somewhere chaotic?
That was one of the main pieces of advice from South Carolina business coach Scott Beebe, who led a seminar on how to attract and retain a workforce that comes from the newest generation.
"They see uncontrolled chaos, they're on to the next job," Beebe said. "They won't tolerate it."
Employers of all stripes, but especially builders, need to write down their values, their processes, their expectations and their needs in order to keep their workers accountable, as well as themselves.
The current generation of workers wants predictability from their employers.
Beebe said he isn't convinced that the current trend of job hopping by millennials and Gen Z is about their short attention spans or some desire to try new careers, but rather a symptom of bad managers and owners who often don't know what they want, let alone what they can offer their workers.
"The younger generations want clarity about moving up, money, their role, the process," Beebe said.
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Reach reporter Wheeler Cowperthwaite at wcowperthwaite@providencejournal.com or follow him on Twitter @WheelerReporter.
This article originally appeared on The Providence Journal: 2024 residential building market in RI: Contractors squeezed by costs
