Courting new subcontractors and suppliers has been key to keeping costs down. We have seen prices rise about 5 percent to 6 percent from the bottom of the recession, and this is due primarily to subcontractors and suppliers attempting to get some margin back into their bids after a couple of years of barely breaking even. I don’t think there is much room for subcontractors to cut prices further. Subcontractors are struggling with the arguably deepening recession, and their failure to keep their doors open will put upward pressure on prices. We’ll see another 2 percent to 4 percent in price increases in the next six months in our multifamily housing market. If trades attempt to go beyond this point, others will backfill with more competitive numbers. We will continue to look at expanding our partners to ensure we get the quality we demand at a price that’s competitive.
We have kept up with falling home sales and prices with the help of our purchasing department. It has done a great job reducing costs by thinning our vendor base and continued bidding on materials, all without sacrificing quality. Another way M/I Homes has reduced costs is by decreasing cycle time, which lowers our holding costs and increases the homes built in a year. Construction costs will be controlled over the next few years, regardless of the market. This is mostly because it is good business but also because companies have learned from their mistakes through the downturn. One of the best ventures I’ve worked with is when vendors met monthly with the builder to discuss products that cause warranty calls increases, and challenges in scheduling and operations. Process improvement projects should only be implemented after they are discussed.
Since our economy was hit hard by the recession, we’ve seen construction costs go down, so much so that we are seeing subcontractors go out of business because they can’t make a profit. From the fourth quarter of 2007 through the second quarter of 2011, we decreased our construction costs by 25 percent. Fieldstone constantly looks for efficiencies within the design/construction process. We partner with vendors to find the best alternatives to keep costs down. But lately we’ve been feeling upward cost pressure coming from most every trade. This pressure is driven by volatility in commodity-based products such as steel, concrete, and lumber, as well as plumbing costs associated with copper and its code changes. Over the past six months [through September], we have experienced a 2 percent to 3 percent increase in construction costs spread across all areas.