Welter of Shortages Is Driving Inflation, Typified by Halts in U.S. Home Construction
May 24, 2021 (EIRNS)—The current shortages afflicting production in just about every industry are the result both of pandemic-triggered collapses in demand and production shutdowns during much of 2020, and of the accumulation of furious money-printing by central banks since October 2019 and the U.S. government since May of 2020. Residential construction in North America is now an extreme example, since residential developments are halting construction altogether under the barrage of price increases resulting from shortages of materials. There is a historic shortage of homes for sale and a ferocious “seller’s market” for homes that are built; yet the builders who sell new homes are halting the process in locations across the United States and Canada.
Single-family home construction starts dropped 14% from March to April in the United States. The reason is runaway price increases in building materials, feeding through to a crisis in affordability of homes to buyers in all but the uppermost home price classes. An index of construction materials (lumber, steel, iron, copper, gypsum, etc.) prices is up 12.5% this year, according to a CNBC report May 20. Final prices for homes have risen more, by 18-20% depending on the survey. Homebuilders are inserting escalation clauses into sales contracts, subjecting the buyer to price escalation while the home is being built (half of all builders are doing this); and in other cases, halting construction on subdivisions after putting in foundations, to wait for further developments in availability and prices of materials.
In addition to the price increases there are shortages of materials, and also a shortage of appliances for new homes, according to Associated General Contractors. Construction employment is still below pre-pandemic level. As to existing homes, the sales of these have shifted sharply to the upper price ranges, with medium- and lower-priced homes scarcely selling, because the entire price range has shifted up into the median range of $325-350,000 (the average price is much higher).
In Canada, residential construction stops for months at a time due to shortages and prices. “The whole supply chain is out of whack,” Matt McCurrach, president of Homex Development Corp. in Kamloops, B.C. told CNBC. And President Sue Wastell of Wastell Homes in London, Ontario is quoted: “It’s getting worse and worse every day. Literally every day, we’re finding out something else is not arriving when it was scheduled to.... We’ve never seen anything like this.”
Other shortages are everywhere. There are shortages of 120 significant drugs according to the FDA, for example. The microcomputer chip shortage is projected to last through the next two years. As a result of this North American auto production is down by 25-50% depending on maker, and nearly 10,000 autoworkers have been laid off in consequence.
The UN Food and Agriculture Organization reported May 6, under the headline “The FAO Food Price Index Continues To Rise Unabated”: That index is up 30.8% in a year; the cereals sub-index, up 26%; the dairy price index, up 24.1%; the meat price index, up 5.1%; the sugar price index, up 60%; and vegetable oils, up 100%.”