Surging prices for lumber and building materials are slowing projects in Anchorage and driving up costs

Rocketing costs for plywood, studs and other basic building materials are delaying some projects and boosting prices for badly needed new homes in Anchorage.

Shortages of appliances and other items are also complicating project plans, causing long waits for some items to arrive, builders and shop owners said.

“It’s no end in sight,” said Nikki Giordano, chief executive for the Anchorage Home Builders Association.

Lumber prices nationally have jumped by about 200% since before the pandemic, she said. Alaska builders and hardware store owners have been forced to pass the higher costs on to buyers.

The increases have pushed up costs for single-family homes in Anchorage by $25,000 to $50,000 over the last year, builders say.

New Anchorage homes sold for a record $640,000 in 2020, up by $70,000 from the year earlier. New homes statewide sold for an average $435,000 in 2020, up $20,000 from the year before, state records show.

The higher prices could complicate Anchorage’s economic recovery from the COVID-19 pandemic, officials say. But the demand for homes in Anchorage — already contributing to record sales prices amid a shortage of homes on the market — is expected to remain high.

Cody Hultquist with Hultquist Homes said prices for materials have steadily increased. Suppliers have been sending letters saying prices will soon rise at a preset date. All kinds of products have been affected, including concrete, plumbing items and the sheetrock used to make walls.

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“Week after week,” Hultquist said. “It’s just nonstop.”

Hultquist is sticking with plans to build about 70 homes in Anchorage this year, he said.

He said industry observers expect the rising prices could remain a problem for another year or 18 months.

‘Hard to keep up with it’

Amy Petrusa co-owns Hardware Specialties in Anchorage, which sells lumber and other materials for cabinet-making and interior finish work.

She said suppliers are allocating, or essentially rationing, products. Some wood products, tools and other items that used to arrive in a couple of weeks have been on back order for months.

The shop frequently has been forced to adjust prices.

“It’s hard to keep up with it,” she said. “Every time we get lumber in, it’s a different price. It’s like the spot gold market.”

A customer in the store Wednesday walked away without the high-end sander he was looking for. It wasn’t in stock.

“See, people come in every day and are disappointed,” Petrusa said. “Most of our customers are loyal and they’ll wait, but sometimes we can’t tell them when it’s coming. It makes us sad.”

The price jumps stem from a number of pandemic-related complications and natural disasters, industry observers said.

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COVID-19 has upended global shipping patterns, contributing to transportation delays. People staying home have boosted demand for home renovations. The closure of mills in the pandemic’s early days hobbled production of wood-based products. Wildfires hurt the availability of timber and the small wood particles used in plywood. And the February storm in Texas shuttered chemical plants, hurting the production of plastics and other construction materials.

The resulting cost increases could add to project delays, potentially reducing construction jobs this summer and putting a drag on Anchorage’s economic recovery from COVID-19 this year, said Bill Popp, president of the Anchorage Economic Development Corp.

“We just don’t know how bad the impacts will be because the higher prices are translated into higher sales prices,” he said. “So the developers will make calculations on whether there is enough market demand out there that people will be willing to buy this house.”

The development corporation has hoped that a jump in new residential construction could help reduce average home sale prices that have soared to a record $400,000 in Anchorage.

For the most part, demand remains strong and buyers are simply paying more, market observers say.

Low interest rates, generating lower monthly payments for home loans, drove the hot housing market in Anchorage last year.

The low rates continue to support demand and keep monthly housing payments affordable, said Rob Kreiger, an economist with the Alaska Department of Labor and Workforce Development.

“But when materials get too expensive, there’s eventually a point where people can’t afford to build houses or buy them,” he said.

Widespread impacts, from hotels to affordable housing

The high prices aren’t just affecting the residential construction market. They’ve also slowed plans for an Anchorage hotel. A dual-branded, four-story Holiday Inn Express and Candlewood Suites in Midtown Anchorage has been delayed for a year, a project official said.

And Seth Andersen, who recently built a string of affordable cottages in a condominium complex near downtown Anchorage, said he put a similar cottage project in Spenard on hold until the market settles down.

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“Profit margins being as tight as they are, it just didn’t seem like a good idea to move ahead right now,” Andersen said.

Habitat for Humanity, which builds a small number of affordable homes yearly, plans to buy and stockpile materials for a couple of houses to lock in current prices, said Peter Taylor, executive director.

“This is unprecedented,” he said. “We’re fearful prices will go up in a short space of time.”

Mark Fineman, with Cook Inlet Housing Authority, said the organization has found efficiencies in its multi-unit affordable housing projects that are already underway. That’s helped the authority stick to plans and budgets.

But continued high prices could eventually force the authority to scale back the number of units for future affordable housing projects.

“It’s already difficult to develop affordable housing for a variety of reasons including costs,” he said. “This just adds another layer to the cost component of a project.”

Eric Visser, of Visser Construction and president of the Anchorage Home Builders Association, said builders are adding escalator clauses to contracts to protect them as prices rise.

The higher prices recently forced him to absorb a few thousand dollars of lost profit for a house he’d already contracted to build in South Anchorage, with views overlooking Cook Inlet and Mount Susitna.

“That’s money I’d rather be putting into employee bonuses,” he said. “But this is the home-building scenario we are dealing with now.”