Supply Delays, Tight Workforce Shape Hot Housing Market in Connecticut

Tony Brodeur, owner of North Cove Construction in Old Saybrook, said that recently he’s had to wait as long as 23 weeks to get windows for a construction job. Usually, he said, windows would arrive in about 14 days.

“Appliances are just as bad,” Brodeur said. The appliances he ordered in March aren’t expected to arrive until October. 

His experience isn’t uncommon, according to national industry data and reports from Connecticut and across the country about supply chain issues that have generated delays and price hikes for construction materials. These conditions are contributing to a jump in the cost of new homes, and could potentially tamp down the high demand for new houses in suburbs that began in March 2020.

Across the country, supply chain issues have generated delays and price hikes for construction materials, contributing to a jump in the cost of new homes, and potentially tamping down the high demand for houses in suburbs since March 2020.

Edward Noble, president of Noble Construction and Management in Essex, said that the delays have affected pretty much everything — reinforcing steel, plumbing fixtures, doors and lumber, for instance. 

“Lead times on materials have doubled in many cases — nothing is in stock,” said Noble, who said his wait times have gone from 3 to 6 weeks to 6 to 10 weeks on average. 

Jim Perras, the CEO of the Home Builders and Remodelers Association of Connecticut, said that he’d heard about seemingly random shortages, particularly of less common materials. He said he’s heard from suppliers that the cost of PVC pipes had tripled over the past year. 

At the same time, demand for new homes and home improvements have increased. In Madison, for example, the number of permits filed with the town Building Department increased from 177 in June 2020 to 412 in June 2021. Old Lyme’s Building Department issued 58 permits in June 2020 and 109 in June 2021. 

Vincent Garofalo III, the building official in Madison, said that the increases were a combination of new homes being built and people making modifications to their houses in light of newly discovered, pandemic-driven needs. 

“Quite a few people had said that they needed separation from their children for home offices,” Garofalo wrote in an email. “Some just finish the basement for their kids to go play down there and away from them during the day.” 

In contrast, Mark Wayland, the building official in Old Lyme, said that many of the permits issued in Old Lyme were for smaller scale projects like generators, electrical service upgrades and replacing windows. 

The supply chain delays mean that contractors like Noble and Brodeur may be forced to postpone start dates and that unanticipated design changes can be a significant problem. Noble said the fluctuation in prices makes it hard to accurately estimate the cost of a job in advance.

“You bid a project at what the present value is,” said Noble. “It’s very difficult to carry the right number when the price is changing daily, weekly, monthly.”  

According to Cuihong Li, a professor at UConn’s School of Business specializing in operations and information management, the shortages are the result of high demand and low supply. She echoed Garofalo’s observation — pandemic restrictions meant that more people were spending more time at home and looking at ways to make remote work easier. Restaurants have also constructed outdoor dining spaces. At the same time, pandemic restrictions forced the sawmills to shut down for three months, and have been slow to return to full capacity.

Li said there were labor shortages along every step of the supply chain — not just at the mills, but also shortages of truck drivers and workers at warehouses. 

When “just in time” runs late

Many industries, including construction, operate supply chains on a “just in time” model, meaning that builders don’t keep a large stock of materials on hand. Frederick Warren McKinney, professor of entrepreneurship and strategy at Quinnipiac University’s School of Business, said that the pandemic-driven imbalance between demand and supply meant that materials were going to the people who could offer more money for them. 

“There are some products that are coming off the production line and they’re going to the people who are willing to pay the most for it. And that’s bidding up prices for about every product or material that we’re talking about,” he said. 

Although the price of lumber has dropped since hitting a peak in May, it hasn’t returned to normal. Brodeur estimated that the price has dropped from 400 percent to 300 percent of previous prices. 

And lumber isn’t the only material that has seen exorbitant price hikes. The National Association of Home Builders reported this month that Oriented Strand Board, which is used in wall paneling, roof construction and floors, has increased 510% in price since January of 2020.   

Noble said that the rising price of oil would probably cause the prices of other materials, like asphalt, to increase as well. He also said the lack of workers was delaying manufacturers from returning to normal operations. 

“Everything is affected by the manpower shortages,” he said. 

The cost of labor is an additional concern.

“The financial benefits of working need to exceed the financial benefit of not working,” he said.  

Both Noble and Brodeur suggested that supply chain delays could be caused in part by workers deciding to remain on unemployment benefits rather than return to work. 

But although McKinney agreed that the unemployment benefits have contributed to a tight labor market, he said that doesn’t necessarily mean the policy is a bad one, especially during the height of the crisis. McKinney said he believes wages will need to rise in order to incentivize people to come back into the workforce. 

“The challenge is that the workers are saying, ‘Well, wait a minute, I’m not going back to work for $10 an hour,’” McKinney said. “Now companies are saying, ‘Well, okay, if I pay you more, what’s going to happen?’ Their profits go down or they’re going to have to raise prices even more. So this is kind of the struggle between profits, prices, costs and wages that we’re seeing right now.” 

A “feeding frenzy” 

When wood and PVC pipe become more expensive, it’s not just a problem for contractors. The National Association of Home Builders found that the increase in the price of wood has raised the prices of homes by an average of $30,000 across the country since April of 2020. 

Carol Christiansen, the president of Connecticut Realtors, said that she’d seen this first-hand with her own home, which was built last year during the pandemic. Christiansen, who negotiated the price of her home before the pandemic, said that the last house that sold in her subdivision sold for $42,500 more than she paid for hers, despite having similar square footage.  

Christiansen said she assumed that part of the price increase came from the increased cost of building materials, as well as the stretched-out length of time it now takes to complete a job. Contractors who might have taken between 6 to 8 months to build a house are now working on similar projects for 9 months or a year.

In spite of the higher prices, Christiansen said, the housing market remains hot, and developers are snapping up vacant lots as soon as they are available.

Perras said that Connecticut may be feeling the price spikes more than other states because of the state’s high taxes and cost of living. He also said that zoning regulations were creating a shortage of lots available for development.  

“The lack of buildable lots is due, in part, to antiquated municipal zoning regulations, in addition to workforce shortages and higher regulatory burdens [that] are already impacting costs and build times,” he wrote in an email. 

Christiansen also said that the number of houses on the market was far less than usual. In Ledyard, for example, there are normally 125 to 150 houses on the market at a given time. At the height of the pandemic, there were just 12 on the market, and now there are 30. 

Although what she called the “feeding frenzy” that characterized the earlier part of the pandemic has subsided, she said that the prices of houses are still 15 to 18 percent above normal, and even high-priced houses in Fairfield County are selling. 

According to data from the Connecticut Housing Finance Authority, the average price of a single family home in Connecticut increased from $344,843 in June 2020 to $464,396 in June 2021, the highest average since July 2008. 

McKinney said that Connecticut’s proximity to New York has a unique effect on its housing market. He said that New Yorkers coming in to buy real estate are willing to pay a lot of money for houses because, expensive though they may be, they are still cheaper than prices in Manhattan. 

“What you’re seeing is this convergence of the New York market and the Connecticut market, which is driving up prices,” he said.  

He added that this could temporarily keep middle-income individuals and families out of the housing market until prices come down. 

Christiansen said that she sees the housing boom as an opportunity for Connecticut to catch up from its losses during the 2008-09 recession. She said the state has lagged behind the country in recovering from the housing market crash over a decade ago. 

“I think this is really just our correction at this point,” she said. 

Looking ahead

Data from the National Association of Home Builders showed that the demand for new residential construction has been dropping while the percentage of people looking only at existing homes has risen. Christiansen said she hasn’t seen this happening yet in Connecticut, but she expects a similar trend once foreclosures come back onto the market.

Brodeur said that he expects the construction of new homes to slow, but that he hasn’t seen any slow down in requests for home improvements.

Both Li and McKinney said that the supply chain will eventually right itself, but that it will take time. 

Li said that while the lumber market is already re-stabilizing itself, any materials that are sourced overseas, like appliances, will take longer to return to normal. She said a lack of shipping containers was also contributing to the slowdown. 

But McKinney warned that the recent influx of federal aid dollars could prolong shortages by fueling an increase in demand, and that as school districts and towns undertake infrastructure projects, this will place additional pressure on supply chains and high prices. 

“You’re likely to see, again, an increase in prices, but also an increase in wages, but potentially an increase in profits. So it’s possible that everybody wins,” he said. “I think that the net effect of the infrastructure investment is going to be overwhelmingly positive for the economy, for workers and for companies.” 

But will high prices last even after the cost of materials comes down?

“I have heard a lot of developers say that just because lumber comes down they aren’t going to start making houses for less,” said Christiansen. 

McKinney and Li said that market forces should eventually stabilize prices — but when that happens, McKinney said, will depend heavily on the trajectory of the virus and the ability to keep variants under control. 

“We still are having shocks from the pandemic,” he said. “I think that we cannot return to normal until we have the coronavirus and any of its variants down to what amounts to no difference from the annual flu.”

Li said that companies can use this experience to improve the way they manage their inventories in the future. 

“We have to look further down the supply chain. We should not just react to our immediate customer, we have to look at the customers of our customers to get a good understanding of what the real demand is,” she said. “I think that’s something we need to learn.”

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