Despite grappling with the ongoing effects of the coronavirus pandemic, 2021 was a strong year for the construction industry. Total construction spending reached a record high in July of 2021 and, since Q3 of 2020, the industry has added over $20 billion to the economy each quarter. While the road ahead is by no means smooth, 2022 is expected to be another successful year for construction. As the year comes to a close, here are trends and themes to look for in the coming year.
Surging Demand Shows No Sign of Slowing
Median home prices reached $363,000 in June of 2021, a 23.4% year-over-year increase. The rising prices speak not only to an increasing demand, but also a shrinking supply. Record low mortgage rates have Americans buying homes at a rate last seen in the 1970s, and the housing supply is unable to keep up.
The National Association of Realtors reports that over the past twenty years, the U.S. has built at least 5.5 million too few homes to keep up with housing needs. And, in response to this low inventory, residential construction is seeing an increase in inventory demand. U.S. home building surged to an eight-month high in November, and housing starts are likely to stay strong in the year to come. Further, for those who have managed to purchase a home and existing homeowners, demand for remodels is expected to remain high in 2022.
Biden’s Infrastructure Plan and Nonresidential Construction
Associated General Contractors of America CEO Stephen Sandherr described the recently passed Infrastructure Investment and Jobs Act (IIJA) as a monumental piece of legislation that will “provide a needed boost to the construction industry,” in a statement. With $110 billion devoted to roads and bridges; $66 billion to passenger and freight rail; $55 billion to water infrastructure; $73 billion to electrical grid improvements; and billions more, the bill bodes well for the nonresidential construction sector.
Associated Builders and Contractors President and CEO Michael Bellaman echoed a similar sentiment: “Passage of the bipartisan infrastructure bill creates an opportunity to effectively modernize our nation’s most critical infrastructure, and ABC and our members stand ready to do the important work to bring America’s infrastructure into the 21st century”
According to an August survey from the Associated General Contractors of America (AGCA), six in ten firms report project delays due to workforce shortages. The Home Builders Institute estimates that the industry needs over 61,000 new hires each month to keep up with demand.
On the severity of the labor shortage, Home Builders Institute CEO Ed Brady says, “the construction worker shortage has reached crisis level. The situation will only become challenged in the coming year with other industries rebound and offer competitive wages and benefits to prospective employees.” In other words, the labor shortage is something firms will be dealing with for years to come.
Supply Chain Disruptions
The coronavirus pandemic upended global supply chains and now, nearly two years later, pandemic-induced supply problems persist. Shortages of crucial materials, such as lumber, paint, and steel, persist, leading to increased material costs and project delays. Construction businesses need to get creative and be proactive in sourcing materials to help projects run smoothly and keep costs down.
While the supply chain will remain volatile, we might see small improvements in the domestic supply chain in 2022. Nucor and US Steel both announced plans to build new multi-billion-dollar plants next year.
Though it is not all rosy skies ahead, the construction industry is well poised for growth in 2022. Over the past year and a half, firms have held strong and adapted to meet the challenging market conditions. Firms who stay resilient and find creative solutions to industry wide problems will come out on top in the coming year.