0

Construction Costs To Jump 20% This Year

• Ex-BCA chiefs say surge to last into 2022

• Call to ‘bond’ building materials imports

• ‘Every part of society paying COVID price’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Two ex-Bahamian Contractors Association (BCA) presidents yesterday warned that construction costs will likely increase up to 20 percent this year as cement became the latest product to take a hit.

Stephen Wrinkle and Leonard Sands both warned project sponsors - ranging from multi-million dollar developers to residential home owners - to brace for a significant price spike over the remainder of 2021 due to the post-COVID environment facing The Bahamas and rest of the world.

photo

Stephen Wrinkle

With cement supplies running low in recent days (see other article on Page 1B), the duo reiterated that increased construction activity and building materials demand had combined with supply chain and shipping bottlenecks worldwide to generate a surge in costs as the world continues to emerge from the pandemic.

Mr Wrinkle, warning that “every aspect of society is paying the price for COVID-19”, warned: “All across building materials and shipping, virtually every aspect of the industry is going up. It’s going to be difficult to hold prices at the end of the day because the contractor cannot absorb that. There’s not enough margin in the industry to absorb that.

“Costs are going up across the whole production and supply chain. It’s like a house of cards. It looks like this will continue through the end of the year as it will take that long to catch up. Every time a contractor prices a job he has to account for the price of labour and materials going up. They have to factor that in one way or another.”

While larger construction contracts contain clauses that deal with price/cost rises, Mr Wrinkle warned that the situation threatens to leave “the average homeowner who has a fixed mortgage” exposed. The surge in building materials alone could place construction of such a person’s home beyond their financial reach, especially if they are unable to obtain extra financing from the bank or other commercial lumber.

With plywood, an essential building material used in almost all aspects of construction, having doubled in price in some instances, the ex-BCA chief told Tribune Business: “You could see a 10-20 percent increase in construction costs over the course of this year. The consumer can expect to pay anywhere from 10-20 percent more this year if this current trend continues. 

“Most of our suppliers have tried to absorb the increase, and contractors have tried to absorb it, by any orders placed today have to reflect these increases. I ordered materials in January, and if I ordered the same now I would be paying 10-20 percent more.

“To get it to Nassau, it’s a 40 percent increase because of duties and VAT, and materials are typically 40-50 percent of the job. You have a 20-40 percent increase on materials, with plywood in short supply. This is unprecedented territory for us,” Mr Wrinkle argued.

“This phase that we’re going through now is particularly devastating. It’s not related to the industry; it’s related to COVID-19. It’s totally out of the control of the construction industry, it’s totally out of the control of the consumer, it’s totally out of the control of the Government. We’re all suffering. Every aspect of society is paying the price for COVID-19.”

Mr Wrinkle suggested that the present situation could revive talks about ‘bonding’ construction materials so that import tariffs and VAT are only paid when they are sold, rather than at the border. “It lends credence to discussions about bonded materials coming into the country,” he said.

photo

Leonard Sands

“If affects businesses by having to pay so much in taxes up front. The auto dealers got their bonded status. To make this easy we need to defer duties and VAT until the point-of-sale. Some suppliers spend over $50m a year bringing in materials and that’s a lot of cash.”

The Government has being relying heavily on construction to drive and stimulate the economy post-COVID, and the combination of supply shortages and price increases threatens to disrupt its plans by causing delays and deterring projects still in the pipeline.

Mr Sands, meanwhile, echoed Mr Wrinkle’s assessment of the impact by saying: “I would safely say you are probably going to see an increase in construction costs of 15-20 percent over pre-pandemic levels. Everyone is going to have to adjust to the increased cost of materials prices they will be paying, and that is going to have a net effect on pricing contracts for construction.

“This is globally. We’re going to be feeling the pinch. This is going to go on for a long time. I think for the next 12 months we can see this holding. After that, it will be towards the end of 2022 that we take it back to normal, whatever we consider normal to be after this pandemic. It will be towards the third and fourth quarter of 2022.”

Mr Sands added that all lumber, ranging from plywood to rough framing wood, has been “severely impacted” by production and shipping bottlenecks as both industries attempt to play catch up with soaring global demand following COVID-19 lockdowns and other health measures.

“I’ve seen significant price increases, in certain cases by 100 percent, but on average by 60-70 percent on what it was in 2020,” he disclosed. “That’s a big number to pay for a product we use in every aspect of construction from start to finish.”

Delivery times, Mr Sands said, have been equally impacted. “What is interesting is that, post-pandemic, orders of major items like windows, right off the top they’re granting 40-plus weeks for delivery when, prior to the pandemic, they were granting six to eight weeks,” he added. “What we’re hearing is that shipping is backlogged because there are so many orders that people are trying to catch up on. It’s creating a nightmare.”

Mr Sands added that the Government will have to factor increased construction material prices and other costs into its 2021-2022 Budget projections, as this will raise the price tag for its capital works projects as well as impact revenues.

And post-Hurricane Dorian reconstruction in Abaco and Grand Bahama will also stand to be impacted by building materials availability and costs.

Comments

Sign in to comment