Habitat for Humanity struggles with high construction costs
Reeling from massive reductions in volunteers during the COVID-19 pandemic and grappling with high construction costs, Habitat for Humanity leaders would be the first to admit they are struggling.
The past year has been like one punch after another, they say. First blow: Local Habitat affiliates have had to limit volunteers due to virus problems, forcing them to shell out more money to hire contractors. Second blow: revenues were affected by the temporary closures of ReStores, the reuse stores operated by local Habitat organizations. The third: construction delays caused by pandemic issues in the supply chain, causing affiliates to wait longer for supplies.
What could have been the coup de grace was soaring construction costs. Wood prices, according to the National Association of Home Builders, have increased by more than 300% since April 2020. The demand for new housing, as well as the demand for supplies for renovation projects and other factors, has also held steady. costs at a high level, according to experts. Prices have fallen in recent weeks, but they are still significantly higher than before the pandemic.
Morgan Pfaff, executive director of Habitat for Humanity of the Wisconsin River region, which operates in rural Baraboo, Wisconsin, said the group had had to cancel the second house it was going to build this year because he just couldn’t afford it. The only house they are building costs more because it doesn’t have enough volunteers. âIt will be, at least, an additional $ 13,000 in contract labor that we hadn’t budgeted for,â Pfaff said. “Then you add the cost of the materials, and it’s really upside down.”
Faced with challenges from all sides, Habitat’s locally-managed independent affiliate network is trying to keep up with rising costs by taking out loans, increasing fundraising, and using alternative building materials, between other. Some affiliates are using materials that local stores helped them stock before the price hikes took effect. Now, amid the surges, officials say donors are also stepping up their efforts.
In each of the past three years, the association has built an average of 3,000 new homes in the United States. It continues to be one of the nation’s top affordable home builders, despite being down 4% so far this year from 2019, according to Adrienne Goolsby, senior vice president of the United States and Canada at Habitat for Humanity International. However, experts say his work – and the work of other nonprofit housing organizations – cannot solve America’s nearly 7 million affordable housing shortage alone.
Habitat received around $ 1.5 billion in contributions and other in-kind donations across its network, according to the organization’s annual report for fiscal 2019, which shows the latest numbers without the impact. of the pandemic. These donations, along with federal grants, help affiliates subsidize mortgages for Habitat homes, which families build with volunteers and pay off with an interest-free mortgage that cannot exceed 30% of homeowners’ monthly income.
âOne of the challenges Habitat faces is that many affiliates are working with families who have already been approved for a financial package that did not take into account these increased costs,â said Nancy Lee, Habitat Executive Director for Humanity in South Carolina, which oversees 29 local affiliates in the state.
âAs the cost of construction increases, we see many affiliates absorbing this financial burden on their own,â she added. âIt’s not a sustainable approach, and the ramifications we’re seeing in South Carolina include that affiliates should consider slowing down planned construction schedules and / or finding other ways to weather price increases, though. this situation persists. “
Another reason Habitat houses are affordable is that affiliates get materials for free or at low cost from Habitat for Humanity International partner companies. But affiliates still need to make market rate purchases. Burdened by recent cost spikes, some are now focusing more on home repairs rather than new construction, Goolsby said.
âOur affiliates are also quite innovative, some of them are using alternative materials where permitted,â Goolsby said. For example, instead of using wood-based exterior siding for homes, some are considering switching to rigid insulation boards, made of foam.
Others have chosen not to change their construction model to counter timber prices and will continue to absorb the costs. One of those affiliates, Tennessee’s Montgomery County Habitat for Humanity, will begin passing an 8% increase on to homeowners for future construction, said Rob Selkow, its executive director. Even with the increases, he notes that most future recipient families will fall into the same low-income bracket.
Since Habitat’s subsidiaries operate independently, it is not known how much more will pass on costs to owners. Lee, from South Carolina, says some affiliates base the selling price of a home on their total out-of-pocket expenses, which could be costly for some families. It’s a scenario they want to avoid, she said.
In South Carolina, affiliates absorb a large portion of the additional costs through second mortgages with discounts. These usually aren’t paid back to affiliates unless a family moves out or sells the home they bought before paying off their first mortgage, according to Lee.
All of this contributed to the setbacks in construction. Habitat for Humanity International, which expects high construction costs to be maintained, said it will “continue to examine how production has been affected, and to identify and manage risks for the construction of affordable homes “.
Recognizing the challenges, individual donors have stepped up their giving to the umbrella organization, which has been able to provide grants to struggling affiliates, Goolsby said. Some have also received more funding from local community foundations.
“Do you know what’s on my mind right now?” Stay alive. We are working hard to stay alive, âsaid Virginia Ohler, executive director of West Tuality Habitat for Humanity in Forest Grove, Oregon. His affiliate spent more time fundraising. He also borrowed money and accumulated building materials.
âSome of our local suppliers have been extremely helpful to us and they have worked with us to help keep costs down,â she said. âBut, you can’t buy materials a year in advance. So at some point it’s going to catch up with us.
While there are challenges left and right, the recent drop in lumber prices is a bright spot. Habitat for Humanity International also lifted its recommendations on the use of volunteers earlier this month, which may soon begin to reduce affiliate labor costs.
But the price hikes, according to nonprofits, have extended beyond the cost of base construction. Lee Jeter, Sr., executive director of the Fuller Center for Housing in northwest Louisiana, an affiliate of Georgia-based nonprofit The Fuller Center for Housing, said his office had also seen an increase of their property and liability insurance payments.
The increase will “really cost us as a non-profit organization to rethink our entire portfolio and the way we do business,” he said. âWith all these rising costs, how can we continue to maintain the same level of service that we provide to our customers without getting into financial difficulty? These are tough questions.