Resin Shortages Resonate Throughout the Real Estate Market

If there’s one immutable fact in this universe, it’s this: You can’t build anything without building supplies. Lumber has seemingly been in the news almost constantly, but it’s hardly the entire picture when it comes to materials shortages — it’s just that lumber is an easy item to point to and one that everyone is familiar with.

Another invaluable commodity, though less immediately familiar, that’s in short supply right now is resin. Resin is in a lot of the things it takes to build a structure, from a simple shed to a complicated planned development. It’s in your house and mine. It’s basically everywhere, and we fail to see it because it’s one of those unsung materials that makes daily life possible.

What is plastic resin?

Plastic resin is the base material for all plastics. It’s created when hydrocarbons are heated until they break down into other hydrocarbons, including propylene and ethylene, important compounds in polymers. Polymers are combined in various ratios to create different types of resins that are the backbone of a multitude of plastic types for various jobs. For example, without heat- and UV-resistant plastic resins, vinyl windows would warp and crack in the sun.

Plastic resins allow an entire laundry list of building materials to be created. Things like PVC pipes, fiberglass tubs, vinyl windows, vinyl siding, and even certain types of flooring are made using plastic resins as a major component or building block.

Why are resins in short supply?

In order to make plastics, you need petrochemicals. Unfortunately, hurricanes in Texas and Louisiana have made a mess of the chemical plants that produce them, reducing the available supply. Hurricane Laura last summer, for example, caused approximately 15% of the American polyethylene and polypropylene production to stop overnight. At that time, it was estimated that it would take about six months to get production back to normal levels.

Unfortunately, Texas was battered by storms once again in February 2021. Winter storms caused the power grid to fail in that state, immediately stopping all petrochemical production and reducing about 12% of U.S. polyethylene manufacture, among other vital chemicals. Of course, these shortages raised the international cost of plastic commodities even further because they were even harder to get.

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International supply chain woes further complicated the issue, with shipping container prices spiking several times their usual costs, and paperwork snafus, port congestion, and labor shortages at ports, warehouses, and manufacturing facilities making things even worse. Even the materials that are available aren’t getting where they need to in any kind of timely manner.

Finally, demand for plastics is way up. From plastic packaging required for the pandemic-bulked e-commerce industry to additional need for PPE and plastic-based equipment for hospitals and vaccination sites, everybody needs the limited amount of resin that’s out there.

Resin and real estate

Again, resins are in so many materials that go into building structures that it’s hard to express the impact that a shortage truly has. But the U.S. Department of Commerce just released updated numbers that do a decent job of it. If you just look at permits and starts, it looks like our housing woes are about over. However, that’s only half the story.

With a 6% increase in single-family building permits from July to August 2021 and a 13.5% increase year over year from August 2020, plus a 3.9% increase in privately owned housing starts from July to August 2021 and a 17.4% increase year over year from August 2020, things look pretty darn peachy. But starting a thing is just one part of the story. You have to actually finish it, too.

And completions are still extremely problematic. Even though privately owned housing completions were up 9.4% year over year from August 2020, they’re down 4.5% from July to August 2021. Privately owned housing units authorized, but not started, are up a staggering 47.6% year over year from August 2020 and 3.7% from July to August 2021.

It’s really hard to finish a house without necessities like paint, vinyl siding, soffits, tubs, windows, and other building materials and components that need resins.

The Millionacres bottom line

Supply chain disruptions continue to impact pretty much everything right now, and a lack of raw materials is compounding this even further. If petrochemical plants, resin manufacturers, building material manufacturers, and the trucks, trains, planes, and ships that move these things around can ever catch a break, we may see the available real estate supply even out a bit more.

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However, what we’re seeing right this moment is a lot of nonstarters. Literally. It’s one thing to get a building permit based on plans for a home; it’s quite another to finish it out with a limited supply of materials. Sure, in some cases, you can pivot to non-plastic-based materials, but that comes with its own challenges. For example, what happens when materials like the cement fiberboard siding you’re using in place of harder-to-secure vinyl siding runs out because demand for it has never been so high? Who are you going to get to hang it, since the tools and techniques are completely different?

These are the problems currently holding up some of those starts and completions, and they affect every real estate class. There’s not much to do but hold on and try not to panic with the real estate supply hiccups as the supply chain works very hard to straighten itself out. There will be a return to balance, but it may still take a little while as the global COVID-19 vaccination rate continues to climb.

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The Motley Fool has a disclosure policy. Editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Editorial content from Millionacres is separate from The Motley Fool editorial content and is created by a different analyst team.

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