The real estate market is strong, but developer John Young has to build fewer units in more phases.
San Bernardino City Unified School District officials had to call a special election to get the money needed to complete an elementary school.
`Crisis’ cost control effort
And construction executive John Janacek had to create a cost crisis book, which he updates every day.
“I’ve never had a cost crisis book on my desk,” said Janacek, vice president of estimating at Pasadena, Calif.-based C.W. Driver, a big commercial and industrial builder in Southern California.
But a book like Janacek’s or a similar item is an important tool for those in the building business these days.
Shortages of materials and rising prices have created a headache for development firms, construction companies and public agencies.
It’s a reaction in large part to China’s ravenous appetite for materials needed to build the massive Three Gorges Dam, thousands of miles of roads and about eight cities equal in size to Indianapolis while preparing to host the Olympics.
Domestically there has been a surge in home building and development. School and commercial construction also has rebounded.
As a result, materials prices exploded last year, shortages developed and builders scrambled. The imbalance reached critical mass earlier in the first half of 2004, but the sector is still dealing with the afterglow.
Young, president of Rancho Cucamonga, Calif.-based Young Homes LLC, said that shortages were a bigger problem than rising prices, which could be passed on to consumers.
For example, in 2004 the company built 720 single-family homes and sales totaled $275 million, up from 618 units and sales of $182 million in 2003.
The construction schedule got a major tweaking, though because of what executives like Young call the “perfect storm” that engulfed the building materials sector.
Rather than build 15 units in a phase, the company cut back to six units.
“We had a difficult time getting wood trusses. Forget about price. They (manufacturers) just couldn’t run the shifts fast enough or long enough,” Young said.
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One study late last year found that 14 major industry cost indexes increased an average of 8.7 percent annually through October. A year ago they had increased 2.6 percent over the same period.
The shortage and price spike certainly got the attention of San Bernardino school officials as materials prices are now 30 percent higher than a year ago, said spokeswoman Linda Hill.
Last March, voters were asked to approve a bond measure that would assure enough money to complete a $16.4 million elementary school.
“By the time we finished the environmental impact report and got approved, we didn’t have enough funding for the multiuse room,” Hill said.
The facility will cost about three times more than a similar one built in 1996, she said.
Janacek said steel was the first price trip wire triggered at the beginning of 2004. The vast majority of steel used as shapes for buildings under construction now is recycled scrap product. And earlier in the year China inhaled just about all the world’s production.
The increases kept coming.
Janacek saw costs for one project jump between 7 percent and 10 percent.
“That’s a big amount. The contract had a contingency in it, but you don’t want to burn up all your contingency when you start a job,” Janacek said.