High construction prices hit Twin Cities Habitat for Humanity, reducing number of new homes

Construction costs have spiked more than 20% in the past 12 months for Twin Cities Habitat for Humanity due to COVID-driven shortages, forcing the organization to scale back its projects.

The St. Paul-based nonprofit, one of the largest Habitat affiliates in the nation, built and rehabbed 18 fewer homes than usual in the past 12 months and already has nixed five homes slated to be built or renovated through next spring.

"We're hopeful as things loosen up, and maybe if the market slows down a little bit, that prices will start to come back in line," said Chad Bouley, the nonprofit's chief real estate officer. "In the meantime, it's all a challenge ... it's hard to plan around volatility."

The rising costs and supply chain issues that have affected the housing market are challenging nonprofits, too. At Habitat, companies stopped donating items such as refrigerators because of supply shortages. Showers have been on back-order since March.

Most significantly, lumber costs have doubled from 2020 to 2021. Even as lumber prices start to fall, Twin Cities Habitat expects to spend $1.5 million this year on lumber, trusses and sheathing — up 200% over typical years.

The nonprofit, which works with mostly low-income Minnesotans on affordable home projects from the cities to the suburbs, built and rehabbed 42 houses in the past 12 months. The typical number for a single fiscal year is about 60.

Across the country, prices are soaring for everything from used cars to gasoline and milk. But unlike big corporations, nonprofits often don't have much of a financial cushion when costs suddenly spike.

Two years before the pandemic, nearly half the nonprofits surveyed by the Minnesota Council of Nonprofits said they had three months or less of cash on hand.

Then COVID hit — elevating costs, shuttering programs and slashing revenue — leaving nonprofits struggling. Nearly 200 notified the state Attorney General's Office of their intent to dissolve between March 2020 and March 2021, a 13% increase from 2019.

Like many of Minnesota's 9,000-plus nonprofits, Habitat saw a surge during the pandemic in cash donations, which were up 14%. But that hasn't kept pace with the rising costs in its $30 million annual budget.

And while cash donations are up, the number of donated materials that Habitat relies on for 10 to 13% of home construction has dropped.

Rebuilding Together Twin Cities, a Minneapolis nonprofit that helps needy residents with home projects such as accessible ramps and roof repairs, has seen costs shoot up by 25 to 75% while scrambling to find screws and metal hangers in short supply. The grants the nonprofit received to fund projects were written before the COVID outbreak and didn't account for additional expenses.

Rebuilding Together is relying on extra fundraising from donors and grants to cover the difference while scaling back projects, cutting costs and looking for more donated supplies.

"You have to be a little creative how you get a project paid for," said Tony Sjogren, program director at Rebuilding Together.

Twin Cities Habitat also has grappled with the volunteer shortages that other nonprofits have experienced. After the first coronavirus case was reported in the state in March 2020, Habitat halted volunteer shifts and focused on rehab projects to be completed by its 150 employees. The organization usually needs 10,000 volunteers a year to build or renovate homes and staff donation centers.

"You shut down the entire volunteer department, you really shut down the backbone of all of the operation of homebuilding," Bouley said.

Last summer, the organization brought back some skilled volunteers and small groups of others. That lasted until the fall, when virus cases surged again. Most volunteer shifts closed again until finally reopening fully last month.

"Having volunteers back on site makes a world of difference," said Cathy Lawrence, Habitat's chief development officer. "It's going to get better."

Along with others shopping for homes, first-time and low-income home buyers are struggling to compete in the frenzied housing market. Habitat, which is both a developer and a lender with a mortgage program, helped 35 people buy homes in the past 12 months. That's down from the typical annual number of 50 to 60 buyers.

Kyndra Plowman is one of the recent success stories. She always dreamed of buying her first house by the time she was 25, but that seemed far-fetched in a cutthroat market where houses have been selling over asking price.

"I didn't realize how crazy it was," said Plowman, who grew up in St. Paul. "You can't compete with what is out there."

Then she heard about Habitat. After a year of classes and working with a financial coach, she's preparing to move into her new four-bedroom house in north Minneapolis. She's paying closing costs with no down payment, and will have an affordable mortgage costing her less per month than what she spent renting a townhouse with roommates.

"I never thought I could buy a house until I found out about Habitat," she said. "I'm excited to get in."

There are signs that a recovery may be underway. A survey conducted in March by the Minnesota Council of Nonprofits found that 30% of more than 300 nonprofits predicted they had less than six months before they would experience financial distress. That was lower than the 44% reported last July and 61% in May 2020.

"We hope we're seeing the light at the end of the tunnel," Lawrence said. "We're hoping that ... those big costs for us were just temporary and that they will stabilize."

Kelly Smith • 612-673-4141