The overall cost of construction materials dipped in the last couple of months for the first time since 2020. However, home builders are still facing an uphill battle with lack of warehousing storage and a tight labor market, among other factors.
The Consumer price index is up 6.4% year over year, and the cost of building materials and labor is increasing, making it expensive for builders to start new projects. The price of industrial paint, for example, rose almost 38% over the last two years.
There’s also unpredictability in the supply chain. Lumber prices have been on a rollercoaster ride in recent years, reaching all-time highs in 2021 before falling back to earth in 2022.
Even with the recent decline in lumber prices, the cost of other building materials, such as steel, concrete, and industrial paints remain elevated. Inflationary pressure makes it more expensive for builders to complete projects. That leads to project delays and higher costs for consumers, particularly in the housing and commercial real estate industry.
A lack of new warehousing and manufacturing facilities is also creating bottlenecks in the supply chain, making the situation even more challenging for builders.
In addition to rising material costs, supply chain issues are causing construction delays and driving up prices even further.
National warehousing capacity remains low, and according to one CNBC report, “Warehouses and distribution centers are pushing rates higher, with U.S. storage prices up nearly 11% year-over-year.” The report goes on to conclude that cargo containers will need to be used as temporary warehouse space while supply catches up with demand.
The warehouse shortage leads to delays in material delivery, which is further exacerbating the inflationary pressures on the industry.
Supply chain tightness impacts the construction industry in other ways as well. Demand for new warehouses and storage outpaces supply, and becomes more difficult for builders to secure the necessary resources to complete projects on time and on budget.
This could lead to project delays and cost overruns, further hampering the ability of the construction industry to contribute to economic growth.
These supply chain and construction industry issues have a ripple effect throughout the economy, particularly in the real estate industry. The U.S. real estate market is seeing a shortage of housing inventory as builders struggle to complete projects on time with limited materials and a tight labor market.
Builders are also forced to raise their prices for new construction, which can make it difficult for lower-income and first-time homebuyers to enter the market.
The construction industry will need to find ways to become more efficient and innovative. This could involve adopting new technologies, building practices, and tools to reduce waste and increase productivity. This new economic environment may require contractors to adopt lower cost materials like affordable fireproofing and cheaper lumber like pine, maple, and white oak in lieu of steel or concrete products.
It might also require the use of technology like BIM modeling and project management and projection tools to become more efficient.
Where Are the Workers?
This brings us to the second key issue: an ongoing construction worker labor shortage. According to Robert D. Dietz, VP for the National Associate of Home Builders, “Coming out of the recession, the industry lost about 1.5 million payroll jobs, and, since the low point, we’re up just a little more than a half a million positions.”
Ultimately, construction companies need to compete for talent. These companies should also consider investing in new training programs and incentives to attract and retain workers, given the tight labor market. Providing opportunities for career development can attract new talent who are interested in learning in-demand skills.
Construction companies can offer training programs that help new workers build their skills, and mentorship programs that help them grow within the company. Skills like operating aerial lifts, basic rigging, construction project management, and excavation are necessary skills for most construction companies. Offering training programs and certifications can attract the right talent.
The construction industry in the United States faces significant challenges in 2023 due to rising inflation and supply chain disruptions. Construction companies need to find innovative ways to reduce costs while attracting and training workers.
This article was produced by IPP Magazine and syndicated by Wealth of Geeks.