Unlike other industries, the actual construction of a building can't be done remotely. The only things that can be done virtually are designing and revising a building's plans. Once those plans are approved, the work must be done in person even if part of it is prefabricated.
Rising material prices, a fluctuating workforce, supply chain breakdowns, and many other challenges have set off a domino effect that will take a long time to recover from. There's no one thing causing all these challenges. They all affected each other in different ways.
Fortunately, the factors causing construction industry challenges have also opened opportunities. Here are three challenges and three opportunities in the construction industry.
In 2020 and 2021, the cost of materials rose to historic levels. The Associated General Contractors of America reports that the cost of construction material has seen the highest monthly and yearly increases in AGC's 35 years of tracking this data. As a result, AGC has issued a construction inflation alert.
"The construction industry is currently experiencing an unprecedented mix of steeply rising materials prices, snarled supply chains, and staffing difficulties, combined with slumping demand that is keeping many contractors from passing on their added costs," writes AGC. "This combination threatens to push some firms out of business and add to the industry's nearly double-digit unemployment rate."
The significant increases have had an extreme impact on the total cost of projects requiring materials. For instance, a home that tends to cost $200,000 will most likely experience a 10 percent increase in the cost of its construction. In short, it adds $20,000 to the cost of the project. The construction company cannot sell the house for $200,000 otherwise it will lose money on the project.
Even 2x4s cost more than double what they did in 2019. In a Forbes article, Bill Connerly states the cost of materials won't return to pre-pandemic levels until 2023.
One of the reasons for the sharp rise in the cost of construction materials is the breakdown of the supply chain. It has created a backlog for materials. When there's a backlog, it affects the project schedule. Anytime a construction project falls behind schedule, it could mean paying a penalty. Construction companies are having to revisit their projects and schedules to avoid losing thousands of dollars.
How did the supply chain break? First of all, most businesses had to shut down for a set time. The length depends on the government mandate for the company's geographical location. While much of construction and manufacturing have been deemed essential, the companies still had to monitor how many workers they had on the site. At the same time, they had to change their business practices to follow new safety guidelines including wearing masks and maintaining distance from other workers.
Additionally, even when companies had a need for employees, not all of them could fill in every open slot. That's because workers were having to stay home with younger children or care for sick family members. Perhaps, they became ill themselves. Manufacturing companies had fewer employees on hand to catch up on the backlog created from shuttering the business. They could not catch up because they didn't have enough employees to make up for lost time.
Even severe weather conditions added to the backlog problems. No one could drive to work when the severe snowstorm hit Texas. This also stopped trucks from moving forward and hitting their delivery dates. The pandemic caused the ultimate domino effect.
Finally, who can forget when the ship the Ever Given got wedged in the Suez Canal. That nearly weeklong disruption had ripple effects throughout the supply chain. According to Lloyd’s List, there are more than $9 billion worth of goods passing through that waterway every day. That’s roughly $400 million each hour. It takes time to catch up from a backlog that massive.
Construction has been dealing with a workforce shortage for years. Then the pandemic's arrival threw a wrench into that. For more than a year, the industry has been swinging wildly between a shortage and the loss of jobs.
The Associated Builders and Contractors has analyzed data from the U.S. Bureau of Labor Statistics that shows the industry losing a total of 7,000 jobs in June 2021. However, the industry has reclaimed almost 80 percent of the jobs lost during the earlier part of the pandemic.
Also in June, construction unemployment climbed to 7.5 percent, a small increase from May. However, ABC Chief Economist Anirban Basu warns that reviewing government data collectively can be hard to reconcile.
"Today's data regarding the U.S. labor market supplies more questions than answers," says Basu. "Most economists pay more attention to the establishment survey, which means that most assessments regarding today's jobs report will be upbeat. Nonetheless, contractors and other economic stakeholders should be concerned by ongoing labor market dysfunctions, including an inordinate level of difficulty finding workers, elevated numbers of people quitting their jobs and rising wages."
Not all of it is bad news. With challenges come opportunities and here are the biggest opportunities for the construction industry in 2021.
Although the U.S. deemed construction an essential business, the pandemic greatly affected operations in the industry due to the economic shutdown and supply chain disruptions. Ironically, the slowdown is contributing to construction's recovery in 2021. ResearchAndMarkets.com has published a report indicating the industry will see steady long-term growth in the next year.
"The growth momentum is expected to continue over the forecast period, recording a CAGR of 4.7% during 2021-2025," writes ResearchAndMarkets.com. "The construction output in the country is expected to reach USD $1,819,106.1 by 2025."
Despite rising costs and canceled projects, CBRE cites Dodge Data and Analytics to confirm that construction will see a boom in commercial real estate development for projects costing more than $50 million. Residential development spending is almost equal to commercial real estate development today. Single-family home markets have seen a 10-year high of new development and permit authorizations in 2021. Apparently, this trend will not reverse anytime soon.
Moreover, analysis from Freddie Mac estimates the housing shortage soared to 3.8 million units by the end of 2020.
Part of the $1.9 trillion in the second COVID-19 relief bill can be used for construction projects. The bill deems education, Federal Transition Administration, restaurants, healthcare, COVID-19 research centers, and tribal governments as high priority sectors.
The bill also includes $340 billion in pandemic recovery funds managed by state and municipal governments. These funds can be used for construction among other things. Sporting a value of $10 billion, the bill introduces the Coronavirus Capital Projects Fund. This provides each state with $100 million, with the remainder being allocated based on population and demographic needs.
The pandemic has driven many companies to invest in technologies. That's why the greater need for technology on construction sites is experiencing a huge shift. This is the case despite construction being slow to adopt construction technology. Nonetheless, the construction industry has experienced a surge in the use of cloud-based data management. A Cite Research study has found 75 percent of construction companies use cloud storage.
The benefit of keeping data in the cloud is that employees can access it from anywhere using almost any connected device. To limit the number of people on the actual construction site, a manager may work remotely. Being able to access data from anywhere makes it possible for those who don't have hands-on roles in the construction of a building.
The construction company can also use remote video surveillance to monitor the construction site and help deter crime. The sight of security cameras can drive away potential trespassers. If that doesn't stop everyone, then the monitoring operator can use the audio system to issue a warning. It stops some intruders and, at the same time, helps prevent damage.
Some invaders can't be deterred. Fortunately, the security operators can track their movements while contacting and communicating with the police. Often, law enforcement will show up and arrest the trespassers before they escape.
Video surveillance allows analytics and human security operators to keep an eye on the vast construction site. They can also alert the site manager of any potential hazards and report safety issues. For an additional fee, video surveillance system can record and store all recordings in the cloud for future review. The recordings will come in handy with police investigations.
A surprising advantage of having saved footage is that it could help with construction site fraud and property liability cases. If a vendor claims something occurred on the construction site, analysts can search and review recordings to piece together exactly what happened. The recording may quickly put an expensive liability lawsuit to an end.
Whenever a construction company executes the new safety protocols, they could use video surveillance film in their training. For instance, recordings can show employees how to properly prepare equipment for use and shut them down at the end of the day.
Video surveillance's flexibility helps ensure a fast ROI because of its many benefits. To learn more about video surveillance technology, download your free guide to securing your construction site. It'll show you the myriad of ways a customized security plan pays off for your construction site. To learn more now, please contact us.