Pedro Ocana says he’s lost three customers, at least temporarily, as the supply chain disruptions, project timelines and price increases have impacted his custom-home building business in Calgary.
The president of Sunset Homes says those customers are waiting until the uncertainty and unpredictability affecting many aspects of the construction industry subside.
“They want certainty of the cost,” Ocana said inside a two-storey home that is nearing completion in southwest Calgary.
“We’re not sure at this point if the cost of the construction is going to be $1 million or $1.5 million. So it is a big gap in the actual cost.”
Uncertainty appears to be the new normal in the construction sector as companies scramble to find workers, products and materials in the face of a global supply chain crisis that has disrupted the flow of goods needed to finish homes and other projects. In turn, builders and their customers try to absorb the seemingly never-ending price increases.
All of this is happening at a time when some Calgary homebuilders and suppliers are the busiest they’ve been in years.
Ocana says that in the face of multiple price increases and product shortages, he helps his clients find lower priced materials to keep their budget on track — but failing that, some have opted to hit pause.
“So we have the two spectrums, either continue trying to make it more cost effective, or pretty much stop the whole project and wait a year or two,” he said.
Fifteen of his other projects are still going ahead, and he’s made adjustments to how he orders materials, extending the orders by as much as six or seven months to lock in pricing and availability.
Ocana and his company are not alone.
From vinyl siding, to bathtubs, to plastic pipes
Sterling Homes, one of the city’s larger volume builders, says product delays are pushing back new home possessions for its customers as well — and adding to the overall cost.
“Tubs, a lot of Fiberglas, siding products, faucets, appliances … PVC piping, you name it. There probably hasn’t been much of a supply that to some degree has not been affected,” said Curt Keil, a vice-president with the company.
“There’s no doubt about it, it does create some extended build timelines,” he said.
Keil says typical home builds in Calgary used to take five months. Now it’s seven to nine months.
And their prices have gone up, in the range of $40,000 to $50,000 per home compared with a year ago.
Keil says they haven’t asked their customers for more money after a contract has been signed, even though price escalation clauses are being adopted in some areas.
“We, as builders, are typically taking that risk on the front end with, you know, providing yourself some protection, but also ensure we’re giving the customers the best value as well,” he said.
Statistics Canada says its New Housing Price Index for Calgary has increased 12.9 per cent from September 2020 to this September.
More homes under construction, unfinished
Building delays have led to a 22 per cent increase in the number of homes still under construction in Calgary.
At 11,683 housing units, it’s the highest number the city has seen in years. But it’s being fuelled by supply disruptions and labour shortages affecting the industry, according to the city’s housing review for the third quarter of this year.
“The supply issues this summer and the construction labour shortage have posed some challenges toward the building industry’s ability to expand its capacity,” the report said.
Along with those challenges, demand has been surging, with the number of new housing starts reaching its highest level since late 2019.
Commercial, industrial and institutional building permits are also seeing strong growth, up 122 per cent in September, compared with the same month a year ago.
In September, industrial permits alone climbed 383 per cent, due in part to a $400-million permit issued for a maintenance facility at the Calgary airport.
‘Unprecedented’ price increases
Alberta Glass is a Calgary-based commercial glazing contractor for new construction and retrofit projects. The company’s portfolio includes some of the city’s most iconic skyscrapers, including The Bow and Eighth Avenue Place.
The company’s suppliers have raised prices on aluminum, glass, sealant and other products several times over the past year.
“It’s unprecedented,” said Paul Heyens, the company’s CEO, who has been in the industry for nearly half a century.
“We’re looking at well over 50 per cent in glass increases in the last 12 months. Aluminum, which is our staple, is over 33 per cent in the last 12 months,” he said.
Heyens says some U.S. suppliers are no longer selling into Canada because of strong demand for their products in the United States.
“We’re looking at what used to take four to six weeks to get for glass is now eight to 16 weeks. Hardware sometimes takes six months to get something we used to get in a month. Nobody stocking because nobody has the inventory.”
He says the company’s suppliers used to guarantee their prices for 60 days. That’s down to 15.
In turn, he can’t guarantee prices to his customers, which he says is too risky.
“If they want to hold you to that, then that’s playing roulette with the company, with business, with profit and for our employees, too. We don’t want to make bad business decisions,” he said.
Supply chain solutions
A supply chain expert at the University of Calgary says the global movement and supply of goods is in crisis, and it’s affecting many sectors of the economy.
Serasu Duran says the demand for new housing was fuelled, in part ,by COVID and a desire by some people to find a new place to live.
Duran says many manufacturers don’t have the capacity to meet the demand because of a shortage of raw materials and in some cases labour, again tied to COVID as a result of illness, quarantine requirements and child-care responsibilities.
“Labour and material shortages leads to reduced capacity, which implies long waiting and delays. So, there are going to be long wait times and delivery [times], which will increase material prices,” said Duran.
Duran says some wholesalers have been stockpiling or hoarding materials, which has resulted in higher prices.
Congested shipping ports have contributed to a shortage of shipping containers, which has also slowed the delivery of goods.
“There is a bit of a mess, and I think it’s going to take some time to unravel. [It’s] definitely not gonna be very soon.”
She predicts it could take six to 12 months for the system to improve, and she cautions businesses not to make panic moves.
She suggests project deadlines be extended, jobs be prioritized. She says there needs to be better information sharing as it relates to demand tracking. She also recommends, where possible, that people and companies find local or national suppliers to avoid overseas shipments and to consider finding alternative products.
It’s something Ocana is doing with his customers, but he says it hasn’t been easy.
“It is frustrating, it is a lot of uncertainty,” he said.
“And when we get clients asking, ‘When is this gonna stop?’
“We’re not sure when … not in the near future.”
Bryan Labby is an enterprise reporter with CBC Calgary. If you have a good story idea or tip, you can reach him at email@example.com or on Twitter at @CBCBryan.