For more than a year, manufacturers and builders of all stripes have been trying to get hold of the raw materials needed for production. Supply chain problems, exacerbated by crisis after crisis, all overshadowed by COVID-19, persist. The downturn promises to help, but prices have yet to come down as problems in global shipping pile up, each creating ripple effects that are felt on the other side of the globe. A full economic recovery will require quick solutions to supply chain problems.
As one of the largest consumers of raw materials for construction and services, the real estate sector is most affected by supply chain problems. New residential demand is at an all-time high, but supply shortages and delays are forcing contractors to postpone or cancel projects altogether. It’s just not a one-family building. A poll by the National Council for Multi-Apartment Housing found that 40 percent of respondents indicated a significant increase in prices for the most used materials. A survey by the US Chamber of Commerce found that 70 percent of contractors are facing material shortages. Lumber, steel and electrical components, key to building construction, were some of the worst hit sectors.
“Material shortages and rising costs will lead to higher development costs and potential project delays,” said Kaitlyn Walter, vice president of research at the National Council of Apartment Housing. “In the long term, these disruptions could challenge an already limited supply in the market and jeopardize efforts to ensure housing affordability. New units need to be built at different prices, and the increase in cost only complicates the construction of these units. “
Earlier this year, the Biden administration began a 100-day survey of critical supply chains to national security by convening meetings with industry leaders at the White House. In June, the Biden administration publishes the results, recommending several actions to fix supply chain problems. A new Supply Chain Disruption Task Force is being set up to address short-term challenges to economic recovery. In addition to enforcing fair trade principles and further scrutiny, most of Biden’s plans focus on shortages of batteries, pharmaceuticals, drugs and food. The White House seems to be paying less attention to the problem of shortages and the jump in prices for building materials. Builders need help now.
“Prices are getting incredibly high every month,” Jerry Howard, CEO of the National Homebuilders Association, told Fox Business. “The builders are now starting to say, ‘We cannot build the house that we promised you.”
The National Housing Association / Wells Fargo Housing Market Index, which measures builder confidence, fell 5 points in August, a 13-month low. Howard described the cost of lumber as a major supply chain disruption, saying “nothing was done to fix” the supply chain problems plaguing builders’ spirits. However, at 75, sentiment remains high, given that anything above 50 is positive. Most of all, shortages and supply chain problems are causing builders to miss the moment to enter a hot market. Construction will begin to recover within a year from a 9 percent decline in 2020, according to a Dodge Data study. The construction industry in the United States is expected to grow 15.6 percent to reach $ 1.5 trillion in 2021, according to Q4 2020 Global Construction data. Survey.
Trouble in the construction industry mirrored struggles in the broader real estate sector. Warehouse and data center construction continues to grow, while new offices and manufacturing facilities are falling by double digits, according to Dodge. The Commercial Building Index (CCI), a quarterly economic index designed to measure the outlook for commercial building, rose three points to 65 in the second quarter from 62 in the first quarter. Finding lumber and skilled workers will be the biggest challenge facing growth expectations. Lumber shortages rose 11 percent this quarter, with a third of commercial contractors running shortages. Nine out of ten contractors report problems finding skilled workers.
The good news is that sawnwood prices continue to decline, but not fast enough. September Chicago futures fell 4.4 percent to $ 482.90 per thousand board feet, the lowest since October last year, according to Bloomberg. reports. Overall, spot prices are down 70 percent from their peaks just three months ago. But this did not lead to a corresponding drop in prices for timber yards across the country.
“While most of the timber today is tied to the construction site, slowing growth is supporting it all,” Brian Leonard, an analyst at RCM Alternatives, told Bloomberg. “The industry needs to work through this problem before it returns to the mills to shop. This is forcing factories to cut prices on a daily basis to get rid of the wood. “
With the end of the pandemic approaching (hopefully), the construction industry seems to have a solid foundation to pick up the pace. If lumber prices continue to decline, builders of all categories will be able to take advantage of the post-recovery opportunities. After a tumultuous 2020, the roller coaster may finally stop.