Magazine September 2018

Builders & The Tariff Hurdle

Jon Callahan

Jon Callahan, President of the Home Builder’s Association of Greater Little Rock

Jon Callahan

As President of the Home Builder’s Association of Greater Little Rock, I am fortunate to be at the forefront of many of the local issues which are impacting our industry on both a national and local level. Simple topics such as energy efficiency and codes are usually the norm for our local municipalities; however, lately our industry has been in the national spotlight regarding the new tariffs that have been imposed, which are impacting our members at a local level.

Anyone that has ever built a home knows it can take months of planning and months of construction from start to finish – starting with the idea, house plans, buying a lot, financing, budgeting and then building. All of these are crucial steps that take time to execute. Most are familiar with how the interest rates will fluctuate during this process and everyone wants to “lock-in” to that super low rate as soon as they can to ensure they are paying the least amount of interest.

Most of you may not know that during that same time the construction market itself fluctuates greatly from when the house was budgeted to when the house is complete. So, as a builder, when we are estimating a house that will start in a couple of months we have to attempt to forecast the cost of building materials and labor months from now, which can be a daunting task. If you are a developer, you are forecasting these things a year or more in advance. This is why construction can be a risky business.

Recently there have been tariffs imposed on our industry dealing with wood and steel, both of which are commodities that are heavily relied on daily to build houses, apartments and commercial buildings all over the country. Just like the price of gas can jump at the mention of any unrest in the oil market, the price of lumber and steel jumped at the thought of tariffs even before the tariffs were in place.

These spikes in prices greatly impacted contractors all over the nation and in Arkansas. As mentioned, prices and estimates are completed months ahead of time, and many times, those materials are not purchased until they are needed. This means builders all over the country are paying way more than was budgeted for the materials needed for our projects. We are soaking up the added expense with our bottom line to complete the jobs that were estimated when building materials were less expensive.

Some may not think this is a big deal because they think that contractors and builders make “too much money” and can afford to take a hit every now and then. The same thing is said for big oil when they are hit with cost overruns. I can assure you, as contractors, our balance sheets do not compare with big oil and these cost increases have impacted most of our members at the Home Builder’s Association of Greater Little Rock.

The NAHB reported that the duties are approximately 20 percent on Canadian softwood and 25 percent on steel and aluminum. But when the news first surfaced the market spiked even higher. What this means locally is that the builder, myself included, was paying way more for lumber and other materials than was budgeted. This means we will make less on the houses and buildings we are building, and that is causing an enormous trickledown effect.

If we are making less, then we may not be able to afford to pay our favorite real estate agent to sell the house. We cannot afford to buy that new truck we need which stimulates the local economy. We cannot hire that extra person in the office to help with paperwork. We cannot buy parts for our equipment that we rely on to make a living. We cannot afford to pay our subcontractors, who then cannot pay their employees and invest in their business. This trickles down to each and every family member involved in our industry, to include extended family.

We are part of a huge economy which encompasses hundreds of thousands of jobs, billions and billions of dollars and many overlapping industries. We all remember back in 2008, when our industry took a big hit. It has taken 10 years to get back to where we were. Our industry is more than just contractors making a profit, we are building America.

We are all for buying American-made products and stimulating our own economy before others around the world. But, in this modern global market, it does not make sense to put that very economy at risk to achieve the goal that these tariffs are attempting to achieve. There has to be a better way, and the NAHB and HBAGLR are working diligently on behalf of our members to find the way soon.

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