Tim
Building materials in Austin are expensive and poor quality. That’s the word coming from many construction crews that are currently framing out houses in the opportunity zones we’ve targeted for investment in Montopolis, Parker Lane and East Oltorf. That means that the cost of new construction is expected to rise over the next 3 to 6 months.
Selecting the correct framing materials (mostly 2x4s) is difficult at the best of times. But the current market conditions in Austin are so bad that framers are sending back 2x4s to the source because they’re unable to find straight pieces.
This is especially important when framing interior walls because the straightness of the materials you use directly impacts everything else in the interior of the home. If you work with bowed wood, your kitchen cabinets, drywall and countertops will all be off. So if you want to build a quality product, you have to send these materials back.
That’s a problem when you’re working with suppliers that are already selling an imperfect (natural) product. While some will take back the bad boards and try to sell them to the bigger home builders, others (especially with demand where it is) will refuse, leaving builders stuck.
But quality isn’t the only problem. Due to supply chain issues stemming from COVID-19, there are significant shortages in many materials, not just natural wood. With building materials getting caught in ports around the country, costs are bound to rise as a result. In fact, we’re already seeing the average cost of materials for new builds going up by as much as 10-15%. Given the already high cost of housing in Austin, this may exacerbate the problem as builders who were already operating on the edge begin to blow out their budgets.
What impact will it have on housing availability and price? In all likelihood, these increases are going to result in delays for new product delivery. That means both new construction sales and the delivery of rental properties to the market. If you currently own a property in Austin, this probably good for you. But for anyone relying on new builds, you may need to think about refinancing your projects.
While this additional cost is going to impact builders who are producing spec homes, they may actually be a positive for opportunity zone investors in Austin. Fewer spec home builders in the market for tear-downs means less competition for single family rentals that can be rehabbed and held for a significant period. It doesn’t have as much value-add potential for each individual property, but it does allow qualified opportunity funds to acquire projects with fewer bidders driving up the cost of acquisition.
