Fix-and-flippers, new home builders, and build-to-rent contractors must feel like they’re caught in an endless loop of Groundhog Day. Although many builders and rehabbers had hoped 2022 would bring some relief from materials shortages, labor bottlenecks, and soaring construction prices, challenges in these areas have continued unabated across the country.
As the construction industry continues to grapple with these challenges, consumer demand remains strong. According to a report from the Joint Center for Housing Studies at Harvard University, Americans in 2020 spent approximately $420 billion for home improvements, and those numbers are expected to remain elevated in 2022.
In terms of new construction, the pressure is just as intense: An estimated 5.24 million new homes are needed to satisfy homebuyer demand. But, real estate brokerage Redfin predicts homebuyers will face a record housing shortage in 2022, driven in part by an expected rush of home purchases before interest rates rise further. And, a November 2021 Department of Commerce report revealed the number of houses authorized for construction but not yet started had reached a 15-year high.
In the face of escalating shortages, delays, and prices, how can building and design professionals satisfy demand and still turn a reasonable profit on projects?
Flexibility, solid relationships, and design creativity are critical to keeping projects moving forward in 2022.
Design Your Overall Project: Planning
Design encompasses all aspects of a project, not just use of space, selection of materials, and color palette. With that in mind, what planning adjustments can you make to design your project for success?
Mischa Fischer, chief economist at Angi, said, “With so much uncertainty around manufacturing slowdowns, supply chain disruptions, scarce product availability, and volatile prices, building in flexibility and advance planning to your project is more important than ever.”
To protect against protracted timelines and cost overruns, consider these questions as you plan your project:
- How can you ensure you have a solid team in place for each phase of the project, bringing together the right people at the right time, despite the current labor shortage and competition for talent?
- How can you incorporate materials available locally into your project design?
- What proactive steps can you take to guard your budget against increases in materials once the project begins?
- Where can you build flexibility into the timeline to avoid building delays—and the subsequent cost increases and customer frustration?
- Which relationships can you leverage?
Each project is different, and market conditions likely will continue to change. So, as you move from one project to the next, you may need to adjust your planning process to accommodate the new realities.
Design a Materials Strategy
Although multiple factors have contributed to supply chain disruptions, they are primarily a result of the unexpected remodeling and building boom that occurred just as manufacturers and shippers—both foreign and domestic—slowed or closed operations during the pandemic. Now after more than two years, many basic materials continue to be in short supply—if they are available at all. The National Association of Home Builders (NAHB) claims that in 2021, more than 90% of builders reported delays and materials shortages.
Astute contractors and designers are embracing strategies to navigate supply chain disruptions and advance their projects.
Order early // Some builders and remodelers are ordering materials early and then storing them to ensure they are available when needed during their projects. Bathtubs, typically considered a commodity, were in short supply following the devastating winter storm that hit Texas in early 2021. Some homebuilders resorted to immediately ordering whatever bathtubs they could find and paying for them upfront. Other contractors are buying cabinets, windows, doors, and other items at the beginning of a project to avoid the long wait times (up to 18 months) and the project delays that accompany some backordered materials.
Order first, design later // Materials are typically selected to fit a project’s design. But some contractors are flipping the process. They are acquiring materials that are currently available and designing around them.
Manage expectations // Open and frequent communication with homeowners to manage expectations is vital. A customer may think a simple change in window styles, for example, will have only a minimal impact on a project. Obtaining those windows could delay a project several months, however.
Be flexible // Remain open to new ways of combining materials in your design. Given the selection of appliances, lighting fixtures, cabinets, and other items available to you, consider how you can change color schemes and/or mix design styles to accommodate them. Now is a time for you to be creative. Perhaps you’ll even start a new design trend!
It’s anybody’s guess as to when currently backordered materials may be more accessible—or which materials may be delayed next. Designing a plan for procuring your project’s materials in advance, remaining flexible, and adopting a creative mindset will help you maneuver through supply chain issues.
Design a Strategy to Keep Costs in Line
Supply chain issues combined with increased consumer demand is a sure recipe for high prices.
In his Monthly Economic Dashboard released on Jan. 28, 2022, David Berson, senior vice president and chief economist at Nationwide Insurance, stated: “As supply chains heal, inflation should decelerate, but is likely to remain above-trend into 2023 as prior expansionary monetary policy continues to push services prices upward. Fed tightening will eventually slow growth, but not until next year and beyond.”
In a February 2022 release, NAHB Chief Economist Robert Dietz said: “Building material costs are up 21% compared to a year ago. Their price and availability, along with persistent supply chain bottlenecks, remains the most urgent challenge for builders as they seek to boost production to meet rising demand.”
Still, savvy builders and designers are putting their creativity to work to stay on budget and keep their projects moving forward.
Take advantage of relationships // Don’t overlook your local and national industry relationships. Sometimes someone you know may be able to secure hard-to-find materials or negotiate discounts for you. For example, the Think Realty Supplier Program is one of the many perks Think Realty members benefit from. The program saves investors, developers, builders, and rehabbers time and money. By partnering with companies that have a national footprint and offer quality products or services, Think Realty passes savings on to its members. To take advantage of the Think Realty Supplier Program, sign up for a free membership at thinkrealty.com and then click on Discounts.
Assemble your team design team early // The sooner architects, designers, and contractors can meet to plan a project, the sooner everyone involved will understand goals, expectations, budget, and timelines. Such collaboration minimizes mid-project redesigns, cost overruns, and delays. And, when everyone is looped in from the get-go, there is more time to consider design ideas that keep the cost of the project manageable.
Reuse and refresh // Before designing a remodel, consider what you may be able to reuse. For example, in the past, brand-new cabinets may have been on the shopping list for a kitchen or bathroom project. But cabinets often are still in good shape and can be transformed with some new paint or hardware. Even if you don’t think existing cabinets would fit well with the new design, you may still be able to use them in another part of the home (e.g., garage, laundry room, basement). Some appliances and light fixtures may also be good candidates for salvaging. Existing wood flooring can be sanded, stained, and varnished to restore the finish.
Consider alternative materials // Being open to using new or alternative construction materials could take the stress off your budget, and you might find they are easier to obtain. For example, Tarkett Home offers a new waterproof flooring option called Triton Tuff that is strong, affordable, and aesthetically pleasing. Available in 18 designs that include traditional tiles and woods, modern herringbones and unique ceramic tiles, Triton Tuff is also certified allergy- and asthma-friendly. Its durable textile backing makes it 75% stronger than traditional luxury sheet flooring. Additionally, the company offers QuickShip and Express programs designed to streamline and expedite design and delivery.
Manage contracts wisely // If you’re a builder or rehabber, price volatility can cause you to be locked into contracts with cost estimates that become outdated as your project progresses. Some builders are revising their cost escalation clauses. If you’re a developer, be sure you understand the cost escalation clauses in any contract you sign.
Design a Strategy for Labor
It’s easy to blame the pandemic for the current shortage of trade laborers. Although COVID-19 has certainly exacerbated the situation, the U.S. has seen a steady decline among available tradespeople for several years due to fewer entrants and more retirements.
Data from the U.S. Census Bureau shows the number of tradespeople working in construction labor, plumbing, pipefitting and steamfitting, carpet installation, drywall and ceiling tile installation, carpentry, construction trades, painting, and construction maintenance dropped between 2018 and 2020. Further, the census bureau reports that in 2021, there were 347,000 hires in the construction industry—70,000 fewer than what was needed to make up for separations due to layoffs and retirements. According to just one trade association—the National Electrical Contractors Association—7,000 electricians enter the field annually, but 10,000 retire.
What’s behind the attrition? Some studies point to the emphasis on college education versus trade school education as the reason for fewer new people entering these professions. On the other end, baby boomers are retiring in increasing numbers.
Most experts agree that as long as there are more positions available in the trade industries versus workers to fill them, homebuilders and remodelers will see higher prices and slower project completion times.
It’s not just a shortage of skilled construction workers fueling building delays. Workers across a wide spectrum of industries that interact with the building and remodeling industries are contributing to the backlog. From manufacturing workers who produce materials to truck drivers who move goods to retail associates who stock and sell construction materials to local government employees who process permit applications, the general labor shortage is causing delayed completion times for new construction and home remodeling projects.
Although there’s no quick solution to enticing new entrants to the trades or slowing the stream of retirements, there are some general measures you can consider to design a plan for navigating the labor shortage.
Don’t overcommit. Although demand is high, if you take on more work than your existing staff can handle, efficiency and quality may suffer, potentially damaging your reputation. Worse, you may be forced to default on a contract.
Enlist the help of HR professionals. Trained professionals can offer resources you may not be aware of for competing in the labor market.
Pay fair, competitive wages.
Provide proper training. The labor shortage also means more untrained workers and more workers overall who may be pushing their limits, resulting in accidents, damaged equipment, and substandard workmanship and quality—all of which are costly.
Remember, design isn’t just about color, fabrics, and lighting styles. To achieve success with your projects in the current challenging environment, be sure to “design” them in the broadest sense. Sketch out a project plan that tackles materials shortages, labor bottlenecks, and soaring construction prices—so you can tackle them head on.
Carmen Fields is the director of strategic partnerships for Think Realty and managing editor for Think Realty Magazine. She is known for her ability to establish and develop relationships. Through partnership collaboration, she aims to elevate the real estate industry by aligning with like-minded visionaries through strategy development. She intuitively sees the threads of opportunity that wind through an organization, brings them together into a coherent whole, helps others extend their thinking, and drives material business advantage. Fields is known for her passion around creating legislative initiatives in the real estate investing space. Her past career with Nordstrom has allowed her to develop systems and processes catered toward the client experience. Respected as a credible voice in the industry, finding strategic partners, and establishing relationships, Fields earns a seat at the table wherever she serves.