Supply chain issues, labor shortages slow North Bay home construction

The North Bay housing market remains red hot, yet local home construction has only become more uncertain for builders and developers as the pandemic continues to rattle the broader economy.

An intensifying global supply chain crisis has caused a shortage of building materials, sending prices soaring. And a lack of skilled labor is forcing contractors to scramble to hire enough workers. Those factors have led to construction delays and increased budgets for new homes and projects, costs that in some instances are trickling down to buyers and potentially renters.

That’s worrisome news for a region struggling to build enough homes to alleviate a seemingly intractable shortage of housing that residents can comfortably afford.

During the pandemic, Sonoma County’s already high housing costs have skyrocketed as homebuyers continue to flood into the region and the county works to replace the roughly 6,000 homes lost to wildfires over the past four years. Of the number of homes destroyed, about half have been rebuilt.

Phil Wright, owner of Wright Builders in Santa Rosa, has throughout the pandemic remained busy rebuilding homes leveled during the 2017 Tubbs fire. He’s currently seeing up to two-month delays for key items such as kitchen appliances, cabinets and windows, causing him to push back construction schedules.

“You almost have to have the COVID clause,” Wright said of his building contracts. “We have to protect ourselves when we’re trying to give someone a 10-month window.”

Longer wait times aren’t the only problem. Wright is also dealing with large price jumps for everything from concrete to paint.

In October, the overall cost of materials and components for construction spiked 18% compared to the same month last year, according to the Bureau of Labor Statistics.

Lumber prices, meanwhile, which have been extremely volatile this year, are up over 50% from prior to the pandemic. Trading in futures markets has set prices at around $640 per thousand board feet this month, down from a peak over $1,670 in May.

Wright said the longer delivery times and escalating costs have increased the budget of some homes he’s building by up to 25% compared to similar properties completed two years ago.

Sonoma State University economist Robert Eyler said the reasons for shortages of building materials and components are no different than delays for laptops or mountain bikes. They include coronavirus outbreaks at manufacturing plants, short supplies of dockworkers and truckers and rapidly shifting demands of home bound consumers causing bottlenecks at warehouses, among other issues.

The resulting inflation of material prices and slowed home construction could be contributing to rising housing costs, Eyler said. That’s making it even more difficult for first-time home buyers, which could in turn be putting pressure on rental prices.

“If you’re trying to get in the home market, it doesn't look like there is going to be much relief,” Eyler said, adding supply chains aren’t expected to normalize until at least next summer.

A relative lack of houses for sale in recent months points to builders struggling to bring new homes to market. By the end of September, just 605 single-family houses were available in Sonoma County, a 14% decline from the month before and a 12% drop year-over-year, according to data from Compass Real Estate in Santa Rosa and Petaluma.

That likely contributed to the median price of single-family houses in the county hitting $755,000 in September, a 5% increase from the same month last year and a 16% jump from September 2019.

Rental prices in Santa Rosa, meanwhile, increased 11% year-over-year in October to $1,565 a month for a one-bedroom, according to the rental website Apartment List.

Like many other industries, another challenge for the home building business has been finding and retaining workers, even though construction hiring has recently returned close to pre-pandemic levels, according to state employment data. One key difference for home builders, Eyler said, is that they rely on more skilled workers, meaning contracting firms have a smaller available labor pool than many other businesses.

Mike Mayock, a drywall subcontractor in San Rafael, said he’s had to increase his workers’ pay to stay fully staffed at around 50 employees.

“You have to pay them well and you have to treat them well, and you have to be a lot more flexible than you ever were,” Mayock said.

In downtown Santa Rosa, labor shortages contributed to delaying the completion of the Art House hotel, which local developer Hugh Futrell opened in September. The Art House was originally planned to be an apartment complex with 21 rental units and 15 extended-stay lodging units, but costs incurred prior to the pandemic meant it made more financial sense to open it as a hotel, at least for now, Futrell said.

“I don’t think anybody anticipated the supply chain problems going on this long. But rising construction costs is something that has been occurring for some time,” Futrell said. “The pandemic greatly exacerbated the problem, but it didn’t start it.”

Some long-standing reasons for increasing costs, according to developers, include fierce competition for construction financing, the high price of land in the North Bay and impact fees levied by local governments, as well as labor shortages.

Developers of subsidized affordable housing face additional challenges. In particular, the complicated and time-consuming process for securing public funding and wage requirements tied to that grant money, said Efren Carrillo, vice president of development at the Santa Rosa nonprofit developer Burbank Housing.

Carrillo said those factors — combined with increasing material prices during the pandemic — contributed to a higher overall cost of the 3575 Mendocino project, a 532-unit apartment complex set to break ground this month at the former Journey’s End mobile home park in Santa Rosa.

The per unit cost is budgeted for around $650,000 per unit, up from an average price of around $425,000 per unit five years ago, Carrillo said.

“What we are planning for in future development is a higher contingency to respond to a projected escalation in cost of materials and cost of labor,” he said.

Mayock, the drywall contractor, isn’t fretting about how long the labor and supply chain issues might last. He’s focused on the things he can control, such as finding alternative manufacturers for the building components he needs.

“You don’t have a crystal bill, you just have to make it work,” he said.

You can reach Staff Writer Ethan Varian at ethan.varian@pressdemocrat.com or 707-521-5412. On Twitter @ethanvarian