JAN 11 Corridor residential developers and city planners enter 2021 cautiously optimistic after weathering months of pandemic, economic depression and natural disaster. “We’re going to have a good year, not a great year,” predicted Glenn Siders, owner of Siders Development and president of the Greater Iowa City Area Home Builders Association of residential development headed […]
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JAN 11
Corridor residential developers and city planners enter 2021 cautiously optimistic after weathering months of pandemic, economic depression and natural disaster.
“We’re going to have a good year, not a great year,” predicted Glenn Siders, owner of Siders Development and president of the Greater Iowa City Area Home Builders Association of residential development headed into 2021. “There’s still going to be demand for remodels and for new housing.”
Supply-chain disruptions and general uncertainty led to persistent local shortages of residential building materials in 2020. Those factors were aggravated in Eastern Iowa after the Aug. 10 derecho, which fed an overnight surge in demand for roofing material, shingles and even roof trusses.
“That didn’t help anything,” said Mr. Siders. “There was just such an instant demand on that scale.”
Nationwide, the cost of building materials increased 2.4% in 2020, according to the Bureau of Labor Statistics’ Producer Price Index. Prices peaked in October, running 7.4% ahead of 2019, but have since decreased due to seasonal construction layoffs, allowing manufacturers to catch up.
In addition, plant closures due to COVID-19 affected production of such staples as vinyl siding, windows, appliances and roofing material — “a perfect storm regarding building supplies,” according to Jay Iverson of the Home Builders Association of Iowa.
“It’s been a battle to obtain materials,” Mr. Iverson wrote in an email. “We have members willing to drive many hours just to pick up needed materials to keep schedules on track.”
“It’s reasonable to assume some level of elevation on the price of building materials and lumber will continue, because demand has been unexpectedly resilient,” said David Connolly, economic development specialist for the City of Cedar Rapids. “There are some indicators [that] we may continue to still see higher prices into 2021.”
“The hope is for production to catch up with demand,” said Marc Schneider, logistics and supply-chain expert with Iowa State University’s Center for Industrial Research and Service.
Recent indicators have suggested a return to the norm — or something like it.
“The signals in the supply chain are all misinterpreted or amplified,” Mr. Schneider explained. “The demand for lumber maybe went down a little bit as people hunkered down for COVID. Now it’s starting to recover. There’s a lag from when they get the signals to change.”
The lag effect was seen in Iowa City, where permits were issued for 13 new single-family homes in March 2020, then dropped to just two permits the following month before rebounding to 13 in December. The city issued 97 permits for $31.4 million worth of single-family homes in 2020, a significant increase over 2019’s 80 permits for about $26 million in construction costs.
“Single-family is kind of on pace from last year,” said Danielle Sitzman, Iowa City’s development services coordinator. “It dropped off in April and picked up through summer.”
In Cedar Rapids, nine single-family housing permits were issued in both March and April, increasing steadily to 17 in July. The city issued permits for 126 new homes last year, compared to 136 in 2019.
City inspectors and contractors collaborated to keep projects on schedule as pandemic precautions took hold, according to Mr. Connolly.
“We had some conversations with the city and said ‘Can’t we do inspections with video?’” he said. “We’d go down and show them (on video) the electrical panel and whatever they wanted to see, and that worked out. It added a bit of training for people and it added time, but at the end of the day we were able to get those inspections and move forward.”
Cedar Rapids also conducts “virtual” building inspections by video and photo due to the outbreak, Mr. Connolly said.
“We did see a bit of a setback from COVID on several larger projects, resulting in projects being on hold temporarily,” Caleb Mason, economic development analyst for the City of Cedar Rapids, wrote in an email. “The underlying conditions of demand in housing continue to exist. However, we’re seeing that developers are opting to delay project starts until economic conditions improve.”
In larger metro areas, pandemic effects may alter residential construction patterns. But Ms. Sitzman expects current patterns to hold in Iowa City, with apartments and multi-family development downtown and single-family homes in outlying areas.
“We’ve always had a really strong downtown because of the university presence,” she said. “There’s always interest in housing in a suburban setting.”
Prospects for a normal year are strengthened by the Corridor’s agriprocessing and manufacturing base, noted Mr. Connolly.
“Manufacturing products exported from Cedar Rapids to the U.S. and world, they’re doing really well,” he said. “We’re heavily concentrated in food manufacturing and bioprocessing. That’s another factor that’s helped mitigate any COVID disruption on the front end and the recovery on the back end.”
It’s a much rosier picture than Iowa businesses expected in mid-2020. In a survey conducted in April by the Iowa Economic Development Authority, owners and managers predicted a 50% drop in revenue and 33% reduction in employee hours worked. The July survey showed significant recovery in expectations.
“GDP growth has been really quite high,” Mr. Connolly said. “There’s been a sharp recovery in the national economy and Iowa has seen lower unemployment than the nation as a whole.”
While the region’s basic industries and their employees may be poised for a resurgent 2021, a key unknown remains.
“One of the top factors right now is just vaccine distribution,” Mr. Connolly said. “That’s sort of the leading indicator in the return to more normal conditions.”
NEWSMAKERS UPDATE
Material shortages, supply chain issues hamper homebuilders
Homebuilders are seeing a return to something like normal, allowing for the lingering effects of 2020’s pandemic-fueled economic and social disruptions and the Corridor’s own natural disaster.
“It’s pretty much what I expected, with the exception of all the supply-chain issues,” said Drew Retz of Jerry’s Homes’ Cedar Rapids office. “I’ve been doing this for 30 years and I’ve never seen anything like this.”
“We’re still experiencing a lot of problems with materials shortages,” agreed Glenn Siders, owner of Siders Development in Iowa City. “Maybe not so much as we were in the building supplies, but in appliances and such.”
While historically low-interest rates continue to ease financing, both builders say shortages of appliances, plumbing fixtures, cabinets, and similar basic-house furnishings have delayed projects and increased costs. The cost of lumber and plywood products is up 2.5% over the past year, according to the Bureau of Labor Statistics’s Producer Price Index, while construction services are up 5.7%.
“I heard another builder compare the supply-chain issues to whack-a-mole,” said Mr. Retz, past president and current leadership committee member for the Iowa Home Builders Association. “We don’t know which one’s going to pop up next.”
Through September, Iowa City issued 107 construction permits for new single-family homes, compared to 97 for all of 2020 and 80 in 2019. Cedar Rapids issued 105 such permits through September but added another 23 through the last week of October, for a total of 128 to just edge 2020’s 126. Cedar Rapids added 136 new homes in 2019.
Workforce and supply issues are likely to linger.
“It’s maybe a brighter-looking future now than we had (in early 2021),” said Mr. Siders. “But we’d like to get back to something like normal. We’d like some relief or some assistance with the high labor prices or pursue other options but we’re not quite sure how to solve it.”
Mr. Retz said shortages of materials and labor make it virtually impossible to guarantee possession dates for new homes or even accurately estimate how much those homes will cost.
“We’ll just keep rolling,” he said. “But everybody here at this national board meeting is indicating they don’t see the supply chain returning to what we consider normal until at least the second quarter of 2022.”
