Commercial construction firms are facing a severe shortage in key materials. They are also dealing with a lack of labor and rising prices. This is causing a lot of problems for the construction industry. Some developers are choosing innovative ways to deal with these problems.
Construction Dive reports that although lumber and other material costs remain high, it's shortages of labor and other key items that are delaying production for builders and biting into sales.
"While some building materials, like lumber, have seen easing prices, delivery delays and a lack of skilled labor and building lots continue to hold the market back."
Chief economist for National Association of Homebuilders | Robert Dietz
Lennar Co-CEO Jon Jaffe stated that the entire homebuilding industry is facing labor constraints and shortages that are limiting the company's ability to keep up with real estate demand and some of these shortages include the following:
- Engineered wood
- Windows
- Garage doors
- Paint
- Vinyl siding
- Structural steel
- Roof insulation
"Lennar is building homes lower than expected, and builders across the nation are facing disruptions that are affecting different trades at different times in different geographies. These shortages are intermittent, and they are not over yet. In many ways, its truly a game of whack-a-mole, creating a traffic jam. Like cars, the construction process is backed up, creating a chain reaction of delays that cascades from one trade to the next."
Lennar Co-CEO | Jon Jaffe
Lennar, which is the nation's second-largest homebuilder, has increased lead times by as much as 7 times in some cases to give manufacturers additional flexibility. But, it still expects constraints will continue into the fourth quarter and beyond, especially as builders face a growing backlog of orders.
Lennar has taken steps to increase visibility into the extent of shortages, working to increase lead time or in some cases bring in alternate manufacturers.
The National Association of Home Buildings has stated that prices for key materials including lumber have also eased somewhat. Builder confidence in September inched up for the first time in three months on lower prices and higher supply.
Still, demand for materials remains high. Sourcing for building materials on supplier platform Thomasnet.com is up 115% year over year according to an August statement, with lumber related demand up an average of 81% year over year.
RE Journals states that commercial construction firms are also dealing with a lack of labor and rising prices. Contegra Construction Company, which has offices in Edwardsville, Illinois and also in Missouri, works in markets across the Midwest and the country. Eric Gowin, the founder and managing member of the company is familiar with the difficulties construction firms face today. Gowin states that they had to look for new opportunities and warehouse/distribution is a big part of their business now. It probably accounts for 70 percent of their business. They have seen an uptick in new spec buildings and build-to-suits too, with the warehouse work.
Contegra saw office and retail requests go way down. Retail seems to be starting slowly with some activity again. The pandemic probably highlighted some of their constraints in logistics and delivery throughout the country. It made companies think about the amount of warehouse stock they could sit on and how quickly it turned over. During the pandemic, demand for product sped up so fast. It depleted a lot of warehouse logistics capacity. Out of that grew a need for more space. Companies are still reacting to that and building new warehouses across the country.
As far as materials shortages are concerned, Gowin believes it is a major challenge. Two major components that are in short supply are structural steel and roof insulation. Some developers are choosing to pre-purchase steel and then assign it to general contractors to make sure they can meet their development schedules. That has helped somewhat.
Polyiso roof insulation has also been in incredibly short supply. Those lead times are getting way out there, too. They have been putting temporary membranes down to keep construction on pace. If they are working on a large office development, they will put a membrane down on one corner of the building. It's not practical to put it on all over the building, especially if you're building on spec. But, in a build-to-suit, temporary membranes in some locations have worked well for us.
According to AGC News, eighty-nine percent of Contractors are having a hard time finding craft workers, while 88 percent of firms are experiencing project delays and 93 percent are affected by rising material prices.
The results of a workforce survey conducted by the Associated General Contractors of America and Autodesk show that qualified workers are becoming harder to find and construction firms are continuing to be impacted by pandemic-induced project delays and supply chain disruptions. The survey results underscore how the coronavirus pandemic has created constraints on the demand for work even as it limits the number of workers available to hire.
"Market conditions are nowhere near as robust as they were prior to the onset of the pandemic. At the same time, the pandemic and political responses to it are limiting the size of the workforce, leading to labor shortages that are as severe as they were in 2019 when demand for construction was more robust."
AGC's Chief Economist | Ken Simonson
Nine out of ten firms (88 percent) are experiencing project delays. Among these firms, 75 percent cite delays due to longer lead times or shortages of materials and 57 percent cite delivery delays. Sixty-one percent of firms said their projects are being delayed because of workforce shortages. 30 percent of contractors cited delays due to the lack of approvals or inspectors, or an owner's directive to halt or redesign a project.
Rising materials costs were cited by 93 percent of contractors. These rising materials costs are undermining firms' abilities to profit from the work they have, with 37 percent reporting they have been unsuccessful in passing these added costs onto project owners.
Because of all these supply chain challenges, more than half of firms report having projects canceled, postponed or scaled back due to increasing costs. 26 percent of firms report their projects have been delayed or canceled because of lengthening or uncertain completion times and 22 percent say changing market conditions have led to project delays or cancellations. 26 percent of respondents expect it will take more than six months for their firm's revenue to match or exceed year-earlier levels and 17 percent are unsure when to expect a return to previous demand levels.
One hundred percent of building contractors and 97 percent of firms that work on federal government projects report at least some projects were canceled, postponed or scaled back, compared to 61 percent of utility infrastructure contractors and 56 percent of highway and transportation contractors.
Contractors seem to have as much difficulty filling positions as they experienced before the pandemic. 81 percent of firms that are seeking to fill hourly craft positions report having a hard time doing so. And 86 percent of firms seeking to fill salaried positions are also experiencing a hard time hiring.
There are two main reasons so many firms report having trouble finding workers to hire:
- 72 percent of firms say available candidates are not qualified to work due to lack of skills, failure to pass a drug test, etc.
- 58 percent of respondents report that unemployment insurance supplements are keeping workers away.
Association officials are supporting members in their efforts to address labor shortages. This includes launching a targeted digital advertising campaign and providing resources to help members establish or improve construction training programs. The association's "Culture of Care" program is designed to help firms retain newly hired workers.
Over 2,100 firms completed the above survey from a broad cross-section of the construction industry, including union and open shop firms of all sizes.
Editor's note: This is, indeed, a confusing time for the construction industry. DataBid is working tirelessly to report and distill the news that can help you and your company make the right decisions and keep you up to date on the constant changes as they are made. We hope our coverage brings some clarity amid all the confusion.
