Tight housing market’s effects on access and affordability

Home prices across the country, as well as in Minnesota and Wisconsin, continue to climb heading into the summer months. The University of Minnesota’s Peter Hilger and Monica Haynes are available to speak about what’s driving high costs and limited supply, as well as its impacts on first-time home buyers and the accumulation of wealth.

Peter Hilger
“There was an extreme craft labor shortage pre-pandemic, and the pandemic has only compounded the industry’s woes. For instance, there is a cascading effect of lumber prices across many sectors of the built environment. Not only does the wood in lumber yards cost more (up 65% to 162% since Q4 of 2019 for various materials), but the simple lack of material availability is causing labor productivity issues, schedule delays, and a supply/demand issue that is causing substitute material prices to rise.

“Cabinetry, for example, is experiencing long lead times. Steel, among the first thought of alternatives to wood, is also climbing and in short supply. Steel components, such as studs and appliances, are also seeing increases and long leads. Both new construction and remodeling are affected. Prices will come down. However, before that can happen, the law of supply and demand needs to come into better balance. Interest rates may rise and inflation may climb modestly — both of which may impact the cost of materials. For that to happen, we could also see labor demand be affected.

“No wise construction manager will guarantee or lock in prices or schedules given the uncertainty of the cost and supply futures. The best we can hope for is that managers plan well in advance and that their clients can trust them to ‘lock in early,’ and go along with this wild ride that we haven’t been on for a very long time.”

Peter Hilger has been the faculty director, instructor and internship adviser for the University of Minnesota’s Construction and Facility Management Program in the College of Continuing & Professional Studies (CCAPS) since 1997. A practicing architect and construction manager since 1983, he does consulting on development planning, zoning approvals, and provides expert testimony at his firm, Rylaur, LLC.

Contact:
A. Peter Hilger, AIA
[email protected]
(612) 868-3636

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Monica Haynes
“So what does this mean for consumers? According to the National Association of Home Builders, increases in the price of lumber and metal have increased the cost of new, single-family homes by $16,000, on average. Couple that with the historically low housing supply we’ve seen over the past year and home prices are just skyrocketing. In March, the median single-family home in the U.S. sold for a record $335,000, compared with $261,500 in March 2019, according to the National Association of Realtors.

“This is significant, especially for first-time home buyers, who tend to be much more price sensitive. The current sellers’ market is creating a new population of home renters: people who in years past would have been able to afford a home but are now getting priced out.

“It’s also widening the income gap that has become so prominent over the past year. We continue to see how the pandemic has had real, negative impacts on certain demographic groups, while others, like homeowners and those who can work from home, are often benefiting economically from the changes over the past year.”

Monica Haynes is the director of the Bureau of Business and Economic Research, which collects, analyzes and disseminates information regarding the economy of Duluth, northeast Minnesota, the State of Minnesota, and northwest Wisconsin. Haynes’s expertise includes regional economics, energy, tourism, local industry and economic impacts.

Contact:
Monica Haynes
[email protected]
(218) 726-7895

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