North Coast fire victims likely to pay more for building supplies in coming year

As displaced Sonoma County homeowners begin reconstruction after last month’s wildfires, they’ll face a daunting price tag on building materials.

While the estimates vary widely - from roughly $250 per square foot for the basic homes of Coffey Park to double that or more for high-end residences in Fountaingrove - the price of materials such as lumber, drywall, concrete and roofing have done nothing but rise thanks in large part to a spate of natural disasters that has spiked demand.

And they haven’t hit the ceiling yet.

“It wouldn’t surprise me a bit to see materials go up 15 percent” more by the time workers start on the first lots next spring, said John Bly, executive vice president of the Northern California Engineering Contractors Association. “And I wouldn’t be surprised if it even doubled beyond that.”

Local residents, in fact, are about to get a crash course in the economics of building materials as they rebuild, a lesson about a market where supply and demand are greatly affected by natural disasters, trade disputes and even insects - such as the mountain pine beetle that has wiped out much of Canada’s timber supply in recent years.

“The building materials market is a fickle beast,” said David Logan, director of tax and trade policy at the National Association of Home Builders in Washington, D.C.

The price rise in certain materials - such as gypsum that is used in drywalls - is expected to continue in the rebuilding surge from Hurricane Harvey in Texas and Hurricane Irma in Florida. The effects of the North Bay fires aren’t likely to be truly figured into such costs until the building begins in earnest next year, industry officials said.

Local markets can vary widely, especially after a natural disaster, because contractors and retail locations in those areas typically source from local and regional suppliers, Logan said.

“I know for a fact with hurricanes in affected areas that prices tend to soar in those markets,” he said.

The price of materials has been trending up in recent years as the industry rebounded from the recession, which took the wind out of homebuilding’s sails. Weyerhaeuser Co., the nation’s largest lumber supplier, has seen its stock price rise 17 percent in the last year, while Eagle Materials Inc., a large producer of concrete and drywall, has had its stock price increase by 11 percent in the same time period.

Friedman’s Home Improvement has already received notices from suppliers for proposed price increases next year ranging from 5 to 15 percent for some building materials such as drywall, roof shingles and insulation because of market conditions that existed before the fires, said Barry Friedman, president and chief executive officer. The company has stores in Santa Rosa, Petaluma, Sonoma and Ukiah.

“As demand starts to increase for lumber and building material in our area, we can expect the market price to follow,” Friedman said. He did note that there had a been a price drop in the market for some materials such as lumber and plywood recently following initial spikes created after the hurricanes. But that hasn’t been the case for most of the year.

Lumber used for framing offers a good example of the pressures on the building materials market, as it’s so central to the construction of new homes.

The composite price for framing lumber in North America has increased 21 percent in the last year, according to the trade newsletter Random Lengths. It reported a batch of 1,000 board feet was priced at ?$344 a year ago and climbed to ?$436 as of Nov. 10.

The increase is a result of many factors. Washington state, Oregon and the Canadian province of British Columbia had wildfires that threatened their timber stock. Random Lengths noted that Canadian softwood lumber imports - which represent about one-third of the U.S. market - reached a two-year low in the third quarter as a result of the fires.

The Canadian supply also has been reduced thanks to the mountain pine beetle, which injects a fungus into the tree that blocks water and nutrients to feed it, ultimately killing it. American producers have faced similar threats with similar insects.

To add further pressures, the Trump administration earlier this year tacked on tariffs of as much as 24 percent on Canadian softwood lumber - pine, fir and spruce - arguing that Ottawa, Canada’s capital, is unfairly subsidizing its domestic industry by charging below market fees for harvesting on government land.

“That’s the other wild card,” Logan said of legislative and administrative actions that can have an effect on the price of building supplies.

A natural disaster such as the North Bay fires just adds more pressure and delays to the supply chain, especially on top of the fact that 30 large West Coast lumber mills closed in the aftermath of the ?2008 recession.

In fact, Logan said, future delays in the supply chain for lumber could be just as problematic as the anticipated price spikes, given that Northern California sources much of its products from the Pacific Northwest. A delay in securing materials would be another unanticipated hurdle in the rebuilding effort of the more than 5,000 gutted homes in Sonoma County, and local officials fret that the longer the process drags out, the more people will give up and just sell their lots.

“They only have a certain capacity to get to,” Logan said of suppliers. “The fact is, order times get much longer.”

Price spikes can vary between materials.

“Ready-made concrete has proven very predictable,” Logan said, noting that during the past decade that product has risen between 2 to 3 percent annually - just a little above inflation.

And all those materials have to be trucked to the retail store or the rebuilding site. Diesel truck drivers now have to pay an additional ?20 cents per gallon for fuel bought in California as a result of a new state law that went into effect on Nov. 1 to pay for road construction, a cost likely to be passed on to the consumer.

Local contractors said the uncertainty in the costs of both materials and labor make it difficult to provide a precise figure for the overall price of a project. Material costs can vary from 20 to 50 percent on an overall job for a new home, they said, depending how fancy the upgrades are.

Mike Behler, owner of Behler Construction Co. in Santa Rosa, said that he has an investor client for a planned residential and commercial complex in Cotati that has budgeted an extra 25 percent just to cover possible cost overruns.

“My problem is that I can’t give them a definitive answer,” Behler said.

Contractors and their subcontractors generally buy materials just before they start their jobs as opposed to purchasing well in advance and storing them.

“All we are doing right now is conditional estimates,” said David Leff, president and CEO of Leff Construction in Sebastopol, which typically focuses more on high-end homes. More than 20 displaced homeowners have reached out to his design-and-build firm in the aftermath of the fires.

The increase in the price of lumber also will have effects beyond framing. “It affects everything. It affects windows and doors made of those materials,” Leff said.

Homeowners are likely to find themselves on the hook for the increase in the price of building materials if their home was underinsured.

“The consumer has the choice on their type of policy and what their policy limits will be,” said Mark Sektnan, president of the Association of California Insurance Companies, or ACIC. “Ultimately, it’s up to the policyholder to choose the policy that seems right for them.”

Those with an extended replacement cost policy may find themselves in better shape; those policies pay a specified percentage over the policy limit to fully replace a damaged home, or include specific coverage that provides for building code upgrades, Sektnan said.

You can reach Staff Writer Bill Swindell at 707-521-5223 or bill.swindell@pressdemocrat.com. On Twitter @BillSwindell.