‘ABSOLUTELY INSANE’: Developers feeling effects of skyrocketing lumber, steel prices

Lumber sits at a home site in a subdivision under construction in New Palestine. The soaring price of lumber -- a condition brought on in part by the pandemic -- is adding tens of thousands of dollars to the price for a new home, and experts can't predict when the market will stabilize. (Tom Russo | Daily Reporter)

HANCOCK COUNTY — Building is booming in the county, both in the business and residential sectors. But lately, so is something else — prices for materials needed to meet the demand.

Lumber and steel costs have climbed sharply over the past year. It’s causing some of the large developments eyed for warehousing and logistical purposes in the western part of the county to consider pausing. Meanwhile, new homes are getting tens of thousands of dollars tacked on to their sales prices.

S&P Global reported in April that U.S. hot-rolled coil steel prices have surged by nearly 210% since August 2020, shattering previous records set in 2018. The report attributes the spike to scant service center inventories and fewer imports since the fourth quarter of 2020.

Reuters reports that U.S. steel mills have been slowly increasing production after idling furnaces in 2020 amid fears of an extended economic slump caused by the COVID-19 pandemic.

Demand remains strong despite the record high prices, according to S&P Global.

“It’s the industrial and commercial correlation to what we’re seeing in the housing market,” as it experiences its lumber price rise, said Randy Sorrell.

As executive director of the Hancock Economic Development Council, Sorrell has been part of the plans for the dozens of large buildings in the western part of the county over the past couple years.

He didn’t want to identify specific developers, but said he’s heard from a couple with projects slated to break ground this year who now may wait until 2022 to see if steel prices stabilize. Those prices have far-reaching effects, from the final cost of the building to lease rates, and developers want to be as competitive as possible when looking for tenants.

Other builders have said they locked in their steel prices before the spike, Sorrell continued.

“So they feel they are protected,” he said.

Opus Development Company is constructing a build-to-suit structure of over 800,000 square feet along the Mt. Comfort Corridor near Interstate 70 and has plans for other large buildings nearby. Rising steel prices aren’t lost on Doug Swain, vice president and general manager with the firm’s Indianapolis office.

“I would be very surprised if there aren’t people out there that aren’t hitting the pause button on projects,” he said. “We have not to date, but I would be very surprised if there aren’t developers out there that are, maybe the smaller ones in particular.”

In some instances, waiting may be worthwhile, he said.

“You don’t want to be the guy that built the most expensive building on the block, if six or 12 months later that price has started to come back down,” he said.

And it may not come back down, Swain continued, although futures markets have suggested prices may ease slightly later this year and early next year.

“But I don’t think it reverses course completely,” he said. “It maybe softens a little bit.”

Because demand remains so strong, developers have to pay particularly close attention to scheduling, especially when deliveries are being pushed out to spring of 2022, Swain said.

“So people are having to lock in timing,” he said. “That will definitely have an impact on getting buildings out of the ground this year.”

The industry may just have to move to a new normal with a higher pricing level, he said.

“But … it can’t increase in the same fashion that it has in the last six months,” he said. “That kind of increase I don’t think is sustainable.”

The situation stands out in his 30 years in development.

“I’ve not seen anything quite this sustained and substantial in terms of pricing increases,” he said.

As Sorrell said, the housing market is in a similar state. The National Association of Home Builders reports lumber prices have shot up more than 300% since April 2020, causing the average price of a new single-family home to rise by nearly $36,000.

Fortune reports that the COVID-19 pandemic partially provoked the cost escalation through sawmills limiting production and an upsurge of do-it-yourself projects led by so many residents stuck at home. Those factors combined with record-low interest rates and tight existing housing inventories calling for new construction.

“It’s killing us,” said Mike Leslie, general manager of Greenfield-based Bridgenorth Homes. “It’s changing daily.”

Leslie estimates the price increases are responsible for adding $35,000 to $40,000 to a typical 2,000-square foot house.

Unlike suppositions on the industrial and commercial sectors, however, it hasn’t forced any pauses in projects.

“Fortunately to this point it has not,” Leslie said. “I don’t know how much longer it can keep going that way though.”

Leslie has also been in his field for 30 years, and, also like Swain, has yet to see anything like the current pricing conditions.

“This is absolutely insane,” he said. “It’s crazy.”

Lumber thefts from local job sites have been reported throughout the price-rise period as well.

McCordsville Police Chief Paul Casey recalled an instance on May 21 at a subdivision under construction, during which an officer apprehended a suspect accused of taking between $2,500 and $3,000 worth of lumber.

Capt. Chuck McMichael with the Greenfield Police Department said two lumber thefts from job sites have been reported to the GPD in recent months. One was in February for a total of about $5,300 in lumber. The second, which occurred in April, was mostly lumber and totaled a loss of $11,500.

McMichael said lumber thefts have been occurring across central Indiana with the housing boom. It’s somewhat of an easy target, he continued, as it’s often left out in the open with few effective ways to secure it.

“We encourage folks that see people in/around new home construction sites after normal work times to report them to law enforcement,” he told the Daily Reporter in an email. “They may be contractors working late, but maybe not. It is always best for us to check it out and see.”

Capt. Robert Harris with the Hancock County Sheriff’s Department said there hasn’t been a rise in lumber theft reports in unincorporated parts of the county. But because of the rising prices, patrols have increased in developing subdivisions and areas where new homes are being built, he added. He encourages people to call the county’s non-emergency dispatch line at 317-477-4400 if they see anything suspicious.