SALEM ECONOMY
Salem needs more housing. But the building industry has its own problems
With low inventory and high demand, housing prices in Salem have been on the rise. But the local building industry faces a shortage of labor, materials and land. The rebuilding of the Santiam Canyon is expected to put further pressure on the industry.
By Jake Thomas - Salem Reporter
April 12, 2021 at 1:32pm
Pat Laverty works on a home build on Vine Maple Street Southeast on Thursday, April 8, 2021. (Amanda Loman/Salem Reporter)
At a construction site in south Salem, the work gets more expensive by the day.
As the buzz of electric saws rings in the background, Dan Dorn, the president of Sunco Homes and Remodeling, explained how earlier that morning he called his lumber supplier to find out the cost for a sheet of oriented strand board, used for walls and sheets.
A couple of weeks ago, it cost $32 a sheet, he said. That morning, it was $52 a sheet.
"The pricing of materials, it's as severe as I've ever seen it," said Dorn, who's been in the building industry for 42 years. "As my supplier told me, it's not going up in just percentages, it's going up to $2 and $3 a sheet, almost every day."
Then there's the labor shortage, with all of his subcontractors having trouble hiring.
Then there's land. There's not enough of it and what's available is difficult to build on, he said.
These factors are driving up the cost of housing in Salem, and across the country. Locally, the rebuilding of the fire-ravaged Santiam Canyon will put more pressure on the strained building industry. Plus, there are new building codes that go into effect later this year that are expected to increase home prices.
The dynamics in the building industry spell more bad news for Salem's already tight housing market. People with good-paying jobs who've been able to keep working from home during the pandemic have looked to upgrade their living situations. Low interest rates have also spurred demand.
Demand for houses has increased but the supply hasn't kept up.
In March, the number of houses on the market dropped to 107, down from 400 a year ago. The result has been bidding wars for what's on the market and increased prices. The median price of a home sold in Salem or Keizer was $375,000 in March, up from $321,000 a year ago.
REALATED COVERAGE: With low inventory and high demand, Salem's housing market tightens
The increased building costs are adding to the price of new homes. It's also slowing the pace of building more homes.
"We're so backed up on building homes," said Rich Duncan, president of Rich Duncan Construction Inc.
According to figures provided by Mike Erdmann, CEO of the Home Builders Association of Marion and Polk Counties, there were about 2,000 permits for single-family dwellings in 2005 around the peak of the housing boom. After the housing market collapse in 2008, that number plummeted to around 300 in 2011. Last year, it rose to about 1,100.
Because of all the pressures facing the home building industry, someone wanting to build a house on a vacant lot could end up waiting eight months before they could move in, he said.
Erdmann said that after the 2008 collapse, work in the building industry dried up. Many people employed in the industry found jobs elsewhere and haven't returned.
"The construction industry is plagued by lack of labor," he said. "You have folks who are desperate for employees."
Dorn said he'll put up an ad on Craigslist for framing contractors, excavators, roofers, siders, plumbers, electricians and others. Over two weeks the ad is alive, he gets a couple of responses.
According to numbers from the Oregon Employment Department, the median wage in the construction industry is $28.48 as of the third quarter of 2020 (the most recent). That's up from $26.95 from a year ago. A department analysis projects construction industry wages to rise 11% through 2029, with residential building construction to rise 14%.
The price of building materials has also risen considerably. The U.S. Bureau of Labor Statistics index of building material and supplies dealers shot up from 152 in February last year to 195 as of March.
Early in the pandemic, lumber mills projected the housing market would drop so they throttled back, according to a report from the National Association of Home Builders. Instead, demand increased and tariffs further drove up prices, according to the association. That's caused the price of lumber to soar.
Last August, the association said that the increased price of lumber added $16,000 to the cost of of average single-family home.
Duncan said the demand for new homes as well as remodeling has driven up prices for steel, plywood and other materials. He said he's now anticipating a shortage of paint.
"The price of materials is just kind of out of control," said Duncan. "You can't quote anything because prices go up so fast."
Builders in the Salem area also say that there is a lack of suitable land to build new housing. The Oregon Legislature and local governments have sought to encourage denser "infill" development in existing neighborhoods. But builders say there are limits to the approach.
"I think it has some validity," said Ryan Bloedel, co-owner of Bloedel Custom Homes. "But it's not a solution to the larger problem, in my opinion."
He said it's more difficult to get an economy of scale with smaller infill development than open lots. The biggest issue the industry faces is a lack of lots, he said.
Oregon's unique land-use laws require communities to designate where housing can be built. In Salem, most of that remaining buildable land is expensive.
The city of Salem's most recent housing needs analysis shows that most of the vacant and buildable lands are in west and south Salem, which tend to have more hills. About 70% of the city's land zoned for a home is on a slope, according to the analysis. About half the land designated for housing complexes such as apartments is on a slope.
Erdmann said these areas require grading before houses can be built, and the topography makes it more difficult to bring in water and other services. Those factors make building on the land more costly, he said.
New state building codes aimed at increasing the energy efficiency of homes will be in effect in October. Erdmann said the new code will make installing heating systems more complicated and will add tens of thousands to the price of a house.
More pressure is expected to be added to the local building industry as property owners in the Santiam Canyon start rebuilding homes and other structures that were damaged or destroyed by last year's catastrophic wildfires.
Duncan, whose company is helping lead rebuilding efforts, said he expects there to be a tripling of permits in the county. He said some home or property owners in the canyon have been more active about rebuilding than others.
Dorn said that property owners in the canyon are in various stages of rebuilding with some still cleaning debris. He said the rebuilding will "undoubtedly" put additional strain on the industry.
Now, in addition to the shock of the devastation of the fires, property owners in the canyon will have another shock.
"They're in a bad position because the cost of replacing those houses is so high," he said.
Contact reporter Jake Thomas at 503-575-1251 or [email protected] or @jakethomas2009.
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