Rising construction costs impact Idaho developers

August 30, 2018

NAMPA — Local developer Chance Hobbs is working to build low-income senior apartments on the site of Nampa’s old Mercy Hospital on 16th Avenue South, which was vacated years ago and demolished after a 2016 fire.

However, Hobbs and other developers across the Treasure Valley are facing rising costs of construction, in both materials and labor, which is busting construction budgets and sometimes delaying projects.

Hobbs’ development, Mercy Creek Senior Apartments, was approved by Nampa’s urban renewal agency in January. The 50-unit low-income apartments for residents 55 and older was originally expected to cost about $9.3 million. Just six months later, the estimate was already $800,000 short, Hobbs said.

With cuts such as reducing the amount of brick planned for the exterior, Hobbs said his team cut the cost increase down to about $400,000.

Hobbs still expects the apartments to be finished on time in the summer of 2019. However, rising construction costs have impacted some of his other projects. One ongoing development he has in Garden City was delayed about four months when it became too expensive, Hobbs said.

These rising costs of construction are a nationwide problem. A CNBC report from March says costs of materials such as lumber, steel and concrete were up 3 to 13 percent at the start of this year and are continuing to rise. New U.S. tariffs on steel and aluminum imports from Mexico, Canada and Europe are also affecting prices, according to a Wall Street Journal report.

Nampa City Councilman Randy Haverfield, who owns a small architecture firm in Nampa, attributes the cost increase to supply and demand.

“Everyone is trying to build at the same time,” he said.

Hobbs said labor costs are also on the rise because of a tightening market with low unemployment rates. In the last two years, he said he’s seen framing labor costs increase more than 50 percent.

Haverfield said he’s observed that fewer contractors are making bids for projects due to these higher costs. The city of Nampa’s recent request for proposals for a contractor to build Midway Park received no bids, and Haverfield said another project had three contractors suddenly pull out their bids.

With Idaho being one of the fastest-growing states in the country, Hobbs said the rising construction costs will likely have the biggest impact on residents. With fewer contractors able to make bids or complete projects on time, he said that means fewer units coming in.

Hobbs’ partner, Doug Crowther, approached Nampa’s urban renewal agency, the Nampa Development Corporation, in June to request financial assistance for the Mercy Creek apartment project. Crowther requested the board add $100,000 to their tax increment financing agreement, which the board decided to table to wait for formal documentation of the request.

While Haverfield, who chairs the urban renewal board, said he believes urban renewal agencies should be able to help local developers by extending utilities and providing other similar assistance, Nampa’s agency has its hands tied with trying to save money to pay off two $18 million bonds that funded construction of the city’s public safety building, the Nampa Public Library and the parking garage.

However, Haverfield also said the rising costs could change soon as the market adjusts. He said the high costs are like riding a tsunami wave and estimated the market would correct itself within the next several months, although he said it could be even sooner.

“I don’t see how it will sustain itself,” Haverfield said.