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Construction industry braces for price increases

Steel at a Treasure Valley construction site. Tariffs on steel and other construction materials are raising the price of construction materials in the U.S. File photo. 

With President Donald Trump imposing a 25 percent tariff on imported steel and 10 percent on aluminum, the construction industry is bracing for the next wave of material price spikes.

The Idaho construction industry has already weathered 15 to 20 percent increases in material costs and 25 to 30 percent increases in labor costs, over the past half year to year, said Wayne Hammon, executive director of Idaho AGC, a chapter of the Associated General Contractors of America.

“It’s very difficult,” Hammon said. “A lot has to do with where you are in the project. It make things much more difficult and unpredictable. Contractors just in the bidding phase are rejected because bids are too high. Our rapid growth and construction going on puts a burden on the marketplace. We’re not alone (in the country).”

Just what the latest steel and aluminum tariffs have in store for the Treasure Valley construction industry remains a mystery, said Neil Nelson, president of ESI Construction, one of Idaho’s largest general contractors.

“Generally speaking, if it provides the outcome we want, bringing jobs back to the U.S., we’re in favor of (tariff increases),” Nelson said.

ESI so far has not been heavily affected by the overall 8.8 percent national increase in all construction goods over the past year, as calculated in May by the AGC. About half of ESI’s projects are done with the construction manager/general contractor approach, which produces a guaranteed maximum construction price at the outset but also has general contractors and designers collaborating to find more cost-effective ways.

“We often are invited to the table a lot earlier with designers (than was the case just a few years ago),” Nelson said. “I would say the biggest thing is getting in early. There is timing of when to go out to bid and look at the marketplace as a whole, labor as well. We’re making good decisions in the design phase.”

The threat of a trade war with Canada has taken a toll on the confidence of U.S. homebuilders, according to index released June 18. The Associated Press reported thatThe National Association of Home Builders/Wells Fargo builder sentiment index released June 18 fell two points to 68 in June. A reading of 70 in May temporarily snapped a four-month slide.

Any reading above 50 indicates more builders see sales conditions as good rather than poor. The index has remained above 60 since September 2016.

Builders’ view of current sales conditions fell one point, to 75 in June. The outlook for sales over the next six months fell one point to 76. A measure of buyer traffic fell one point to 50.

“Builders are optimistic about housing market conditions as consumer demand continues to grow,” said NAHB Chairman Randy Noel, “However, builders are increasingly concerned that tariffs placed on Canadian lumber and other imported products are hurting housing affordability.”

Cost estimators at construction companies have to predict the future, which includes the Washington, D.C. wildcard.

”It comes to accurate estimation,” Nelson said. “What that doesn’t account for is political changes.”

Sandy, Utah,-based Layton Construction, which has a Boise office, is monitoring tariff talk, said Alan Rindlisbacher, Layton’s director of corporate communications.

“How (tariffs) will direct prices is uncertain,” he said. “We are just watching closely. There’s a lot of caution on the part of everybody. I’d quote some of my favorite economists: A tariff is just a tax. It creates some challenges for doing business.”

Rindlisbacher noted that anticipated steel shortages for the balance of the year compound the tariffs.

“You just do the best you can,” he said. “You just have to flat-out look ahead, plan ahead. You can look at other options. Maybe that will push some owners back to a concrete structure.”

For home construction, the biggest impact is the labor shortage, which is adding about three weeks to the standard 100 days to build a home, said Dan Richter, managing partner of the Avimor development north of Boise.

“It’s a longer building time,” Richter said. “The trades just can’t meet the dates. My building time is probably 25 percent longer for the last six months.”

Regarding tariffs and construction material costs, Richter said he had no answers.”

“We talking with the trades every day,” he said. “I personally feel and hope these things are short-lived and these tariffs are resolved.”

About Teya Vitu

Teya Vitu is an Idaho Business Review reporter, covering commercial real estate, construction, transportation and whatever else may intrigue him in the moment. Join me on Twitter at @IBR_TeyaVitu.