Constructing A Renovated Plan: Supply Shortages Put Omaha’s Developers in A Tight SpotMay 27, 2021 03:38PM ● By Chris Bowling
Photo by Bill Sitzmann
The COVID-19 pandemic forced many to confront complicated truths about our society. Most people can agree on one fact—it’s been bad for business. But for homebuilders such as Ted Ramm, even that’s hard to apply when talking about the construction market.
Ramm and his brother, Jerry, own Ramm Construction. With low interest rates and so many people either upgrading or buying homes, the company has built more homes in the Omaha metro area than ever in the 22 years they’ve been in business.
At the same time, demand is running against a limited supply of construction materials. Lumber, plastics, washing machines, doorknobs, pretty much anything needed to build something is either in limited supply or at all-time high prices. It’s pushing some builders to pump the brakes or raise prices by hundreds of thousands to millions of dollars depending on the project.
And unlike a vaccine, there’s no cure-all to set the market straight. This industry is built on hedging relationships and guesswork market analysis to get the best prices, and the stakes have been raised.
“All that stuff makes our industry even more challenging,” Ted Ramm said. “I mean, we took it for granted, before, when the materials were available.”
In some ways, construction has always been about balancing spinning plates. Builders are made based on their abilities to do the basics—do good work, make deadlines, and pay their people on time. Meanwhile they have to get in with land developers and build relationships with suppliers.
For a long time, missing those interpersonal relationships was the only thing that really had an effect on builders, said Ryan Spellman, real estate developer with J Development.
“COVID has really kind of robbed a lot of those interpersonal relationships,” Spellman said. “Almost everything’s done over Zoom or Microsoft Teams now, and a lot of those in-person meetings that were so valuable in the past, and where you really got to know somebody and really got to work through problems together, it’s not that it’s totally gone, but it’s certainly taken a hit.”
Outside of that, construction was one of the few types of work able to resume mostly as normal. With fewer cars on the roads, more street maintenance projects were undertaken. In the housing world, more people decided the pandemic was the right time to upgrade to a home with more space for gyms or one or more offices.
Builders still ran up against issues with manual labor shortages—compounded now with workers missing days after catching COVID-19—as well as having to limit the number of contracts they could take.
It wasn’t until a few months ago that commodity prices began to spike. Because factories had slowed production, stockpiles of lumber and plastics dwindled slowly until they bottlenecked around last summer, putting prices on a rapid upward trajectory that hasn’t stopped since.
New developments keep coming. Recently a 1,300-foot cargo ship, almost as long as the Empire State Building is tall, backed up traffic in the Suez Canal. A once-in-a-lifetime snowstorm in Texas also caused pipe, roof, and other kinds of damage to thousands of homes.
All these factors cause commodities like lumber to reach historic heights, costing more than double than it has at any point in the last 25 years. That’s baffling to someone like Ramm.
“[It brings out] some anger, some disbelief,” he said. “But I guess to an extent we’ve been conditioned to, I don’t know, expect the unexpected, or, you know, be flexible and look for new solutions.”
Builders have found ways to maneuver around these problems. Those tight relationships they built with local suppliers have kept them stocked. And if they find that the kinds of light fixtures or laundry machines they wanted aren’t available, they look around until they find new ones.
Other things don’t provide that wiggle room. Builders can’t find an alternative to lumber, for example. Traditionally Ramm locks the project’s price when the contract’s signed. Without knowing what commodity prices will look like by the time he’s built or finished the home, he’s got no way of knowing how much profit he’ll end up with.
Bigger builders working on longer deadlines have a few more options to keep business moving. Incentives such as tax increment financing, a government program that gives developers tax breaks for up to 20 years, and contractual options to keep prices flexible provide a little more room to breathe. Spellman, however, said ultimately if commodity prices continue to soar it could drive up rent in new apartment buildings so companies like his can recoup their losses.
Spellman doesn’t think that’s the future staring down Omaha.
Omaha’s steady, modest growth over the past few decades have shielded it from economic downturns in the past. Spellman hopes that once again the city can weather another economic storm without too much financial fall out.
“I don’t know exactly what’s going to happen with this COVID-19 construction material hiccup that we’re going through, but I do believe it’s a hiccup,” Spellman said. “I’m glass-half-full on it. And I think things will...straighten out a bit over the course of the next handful of months...You know, I think we’ll ultimately get back to normal.”
This article originally appeared in the June 2021 issue of B2B Magazine. To receive the magazine, click here to subscribe.