The Coronavirus pandemic sent many industry workers home and delayed projects over the last few years, including in the construction industry. While the industry did not stop work completely, there was a significant slowdown in projects due to labor and supply chain shortages. Now, nearly a year after the peak of the pandemic, we are seeing the resilient industry make a return in the face of some challenges and opportunities that may impact its ability to meet current demand.
Opportunities
One opportunity area for the construction industry is residential real estate. Demand for housing in the last few months has soared, and new home construction starts are up 6.8%. Unfortunately, with rising costs and the median home price having nearly doubled, a majority of Americans are not able to afford a median-priced home. With rental occupancy rates rising to the high nineties, the affordable housing sector is seeing high demand and interest, posing another opportunity for construction work.
The commercial real estate industry is also seeking improvements following the pandemic. As many jobs have been converted to hybrid or full work-from-home opportunities, apartments are looking to improve amenities for their residents that are home most of the time. As well, in an attempt to lure employees back to the office, office rental spaces are also looking to improve amenities to add more value to their leases.
Another high-impact opportunity for the construction industry comes from the Infrastructure Investment and Jobs Act. The Act was signed into effect in November 2021 and was designed to modernize and improve U.S. infrastructure, including roads, bridges, transit, rails, ports, airports, broadband, and drinking and wastewater infrastructure. It provides nearly $3 trillion toward expanding and upgrading U.S. infrastructure. The Act also seeks to create millions of job opportunities over the course of the next decade.
Challenges
While demand is high and opportunities are available, there is concern circling about the impact high inflation and labor shortages will have on the industry moving forward. Projects will likely be more expensive and ongoing delays are foreseen as a result of labor and material shortages. Over the last two years, the construction industry has seen a 15 – 20% increase in costs each year. This is likely the result of ongoing supply chain shortages and increasing employee wages.
But, isn’t the Infrastructure Investment and Jobs Act creating more jobs to combat labor shortages? Though the Act does allow for the expansion of construction jobs in the coming years, following the pandemic we have seen a steady decline in vocational school enrollments. The workforce is already spread thin and without a strong pipeline of prospects, the problem is likely to get worse.
Aside from material shortages, the supply chain issues of recent years have also contributed to the rising cost of raw materials. Lumber, steel, and copper, staples in the industry, have seen price increases ranging from 30% to as high as over 100% spikes.
Looking Forward
However, not all hope is lost. With technological innovations occurring daily, there is the opportunity to streamline processes and ease labor challenges with the use of improved technology. Performing detailed assessments prior to the beginning of a new project also allows for transparency of labor and material requirements. Consider the following steps to stay ahead of and informed of industry challenges –
- Labor Assessment: A labor assessment grants valuable insight into the local workforce. Conducting an assessment in advance of a new project allows for planning and transparency of what is needed and available with regard to labor.
- Technology: Technological advancements that can be used to help construction firms moving forward are twofold.
First, the labor challenges of today can be combatted through the adoption of safer work environment technology as well as investing in the skills of workers by offering upskilling opportunities. These tactics are not only enticing to prospective employees but are also used to support maintaining your current workforce.
Secondly, adopting augmented and virtual reality as well as artificial intelligence technologies, can improve forecasting efforts and help firms envision layouts. The use of these technologies will allow for greater accuracy and efficiency.
- Cost Assessment: Though the new infrastructure plan does require that construction materials be sourced from U.S. suppliers, this requirement can be waived in the case that such sourcing causes a 25% or more increase in costs. Conducting a cost assessment upfront not only allows for transparency but can also save a project a significant amount of money and time upfront.
For more information on the future of the construction industry and how to prepare for the changes, please contact Rodney Dellinger at RodneyDellinger@dhw.cpa or (828) 322-2070