Construction After Covid

Construction after covid has affected everyone in the industry with labor and material shortages and long permitting delays. Using research from the past 3 years following the pandemic, this blog aims to educate homeowners and others involved in the industry on the current status of construction and why it’s important to get ahead of the unstable economy and invest in your home.

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Construction After Covid has been a major adjustment for everyone in the industry.

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Eliana Lerma

While home renovations and new home sales activity have increased significantly in recent months, a shortage in the U.S. is still present. A recent analysis from Freddie Mac found that an estimated 4 million new homes will be needed to meet existing demand, representing a 52% increase compared to 2018. This gap has presented local builders and others in the industry with the immediate opportunity to accommodate this unmet demand while also generating economic activity. Property owners are also taking advantage of the affordable housing shortage by making home improvements to increase overall equity and invest in their assets during these uncertain times. However, due to the high volume of projects in the pipeline, the residential construction industry is facing some major setbacks.

1

Material and Labor Shortages

2

Inflation

3

Permits

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Because of this acceleration to combat the affordable housing shortage and increase property value through construction and renovation, the industry has been struggling to balance supply and demand. These post-pandemic economic instabilities have influenced the price of construction materials, the cost of manual labor, and city departments that are responsible for processing permits. This has left many homeowners with a loss of hope that their project will be completed under time and budget and general contractors in a scramble to make ends meet.

Material and Labor Shortages

The price of construction materials has increased by approximately 20% over the last 12 months. Suppliers are frequently mentioning the impact of rising fuel, freight, and electricity costs which are significant additional challenges being faced by the industry. According to a study by the Associated General Contractors of America, more than 2,000 firms nationally and 85 firms in California on their pandemic recovery found that the majority were suffering from labor shortages, supply chain disruptions, and rising material costs, all of which contribute to 90% of firms experiencing project delays.

The shift to remote work has also been hard for construction since it’s impossible to complete much industry work off-site. During the pandemic, most projects were put on hold for health and safety reasons, forcing companies to make tough choices about who to keep on staff, employee payment, timelines, and whether or not to continue business. Some experienced workers retired from construction sooner than they planned in response to these pandemic uncertainties.

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Inflation

The recent rise of construction activity has clearly had a direct influence on labor and material demand, therefore directly impacting construction inflation. When the activity level is low, contractors are all competing for a smaller amount of work, and therefore margins are reduced in bids. When activity is high, there is a greater opportunity to submit bids on more work, therefore increasing bid margins just like we have seen following Covid-19. In 2020, residential construction Inflation increased by 4.5%. 2021 saw a residential inflation increase of another 13.2%, and raised 11.7% more in 2022!

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Permits

Unfortunately, the permit process is already very long and tedious in California due to strict building codes and development regulations, but now, it’s become an even bigger problem due to a COVID-inspired influx of permit requests during the pandemic that has kept planning departments incredibly overloaded. Now, more than ever, the permit department is short-staffed and moving at a much slower pace. Permits usually take between 3-6 months, but now, property owners are experiencing even longer delays since the city was not prepared to process this many projects at once.

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What’s Next?

Working through the COVID-19 pandemic economic fluctuations has been a learning curve for everyone. We used to live in a time when companies weren’t sure if their tasks were considered essential or non-essential, and how to manage safely on a construction site where everyone usually works in close contact with one another.

General contracting companies like us who have survived the pandemic are still working to combat the outdated perception of what construction work is like as we focus on integrating technology into every avenue of our work to standardize every procedure, speed it up through digitalization, create tools that save everyone time and money, and hire more remote talent to create avenues for career growth. If companies continue to innovate, the construction industry is set to expand exponentially in the upcoming years. 

Invest in rental units… NOW!

If you have started a project with us, please be assured that you made the right decision to invest, especially in building a rental unit! Even with prices so high, it is the smartest decision a homeowner could make during these times. Delivering your project in a timely manner and accurately to the initial quote is our top priority. We have taken the hit for these price influxes and are actively working on solutions to combat all further delays and material inflation. 

If you are interested in starting a new project, we encourage you to book a free consultation with one of our Home Solutions Experts to foster the most strategic plan for investing in a project that produces instant profit and long-term appreciation.

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