As more and more states relax pandemic restrictions, the construction industry is beginning to return to normal. All be it a new normal, as contractors continue to struggle with material shortages, higher prices, and a labor shortage. Still, most economists predict that construction will continue to rise throughout 2022.
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- American Institute of Architects (AIA) Construction Forecast predicts that non-residential construction will go up 4.6% in 2022.
- Oxford Economics and ConstructConnect predict residential construction will go up 9% in 2022.
- Global Construction Perspectives says construction will continue to grow by 2.3% per year, and by 2030 will reach $16.6 trillion.
Looking at 2022, I would say I’m nervously optimistic. Nonresidential construction, by and large, seems to have passed the low point and is on an upswing.
– Ken Simonson, Chief Economist for the Associated General Contractors of America
With the passing of the infrastructure bill, many large federal projects are expected to go online in the 3rd and 4th quarters of 2022, giving a much-needed boost to the industry.
“I think that 2022 is going to be very busy for you all,” says Anirban Basu, chief economist for Associated Builders and Contractors and CEO of consulting firm Sage Policy Group. “Think very long and hard before you enter into contractual obligations. Make sure you build enough margin and contingency.”
Basu predicts a rise in state and local spending on construction going forward, including school construction. Contractors will need to ramp up their operations to handle the influx of available work.
“I think, to be successful, it’s going to help to be bigger,” he says. “Significant technologies are more expensive, and recruiting costs are significant, and training costs are significant. It’s nice to have a larger line of credit and more bonding capacity to go after some of these large-scale projects that are coming down the pipe, whether in infrastructure or other segments.”
The continued increase in volume can be tied to the effects of the pandemic both on the industry and the general population. “The impact of COVID has been far from equal,” notes Global Construction Perspectives director Mike Betts. “In most countries it’s been negative but in some, it’s been positive as working from home has encouraged people to invest more in their homes.”
This investment has led to a steady recovery for the industry over the past year and a half.
Continuing challenges
However, we aren’t out of the woods yet. Many contractors are struggling with the residual effects of COVID shutdowns that occurred two years ago. Workers and building materials are hard to come by and are more expensive than they were before the pandemic began.
Labor shortage
The construction industry continues to struggle with bringing new talent to the industry. The perception of construction jobs as dirty and physically demanding may be a part of the problem, along with the societal view that students graduating from high school should all want to seek a college education. The fact is that college isn’t for everyone, and construction careers can be performed by anyone given enough training. Most journeymen tradespeople get paid more than their college-educated friends and don’t have the tuition debt to show for it.
In the industry, there were 345,000 unfilled jobs at the end of November 2021. That was actually down from October when openings hit an all-time high of 455,000, but up from 261,000 a year earlier, a 32% jump, according to the Bureau of Labor Statistics.
One of the answers some companies are pursuing is the adoption of technology. Today’s young workers grew up with technology, so they are more comfortable with it than past generations. Contractors are recruiting young workers to help with scheduling, estimating, and project management, which most companies use software for. Upcoming tech for virtual reality, drones, robotics, and building information modeling (BIM) is driving the surge of young people to the industry.
Supply chain issues
A combination of production and shipping delays and rising material prices has created a problem for contractors on current projects. Production stoppages due to the pandemic and trucking and shipping disputes have caused project delays and price increases.
“The good news is we are starting to see factory output come back to close to where it was prior to the pandemic,” Richard Branch, chief economist at Dodge Data & Analytics said. “That should help the supply side, and if we start to see some improvements with the log jams at ports, perhaps by the backside of 2022, we might see some reprieve from these higher prices.”
“I’ve gotten more optimistic about material prices,” Simonson said. He doesn’t expect them to return to pre-pandemic levels but anticipates more up and down volatility, which is better than the upward swing many material prices took through 2021.
Some contractors dealt with the material shortage by stockpiling materials they used on a regular basis. Unfortunately, this is exacerbating the current supply crunch.
Some of it is a shortage, and some of it is shipping, but some of it is still a little bit of fear, where people are buying products to try to protect themselves. That’s driving up the demand, which does not help the overall industry.
– Deron Brown, President & COO of U.S. Operations for Edmonton, Canada-based PCL Construction
Experts don’t see supply chain issues being resolved completely until sometime in 2023. Contractors need to keep this in mind and be proactive with purchasing to ensure project timelines are met.
Positive outlook
Overall, it appears that the construction industry is set to continue its rebound. Contractors are learning to deal with shortages in labor and materials, and these will continue to be problematic. Adopting technology, like project management software, can attract younger workers and make systems more efficient, reducing company overhead costs.
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Author Biography:
Dawn Killough is a construction writer with over 20 years of experience with construction payments, from the perspectives of subcontractors and general contractors. Dawn has held roles such as a staff accountant, green building advisor, project assistant, and contract administrator. Her work for general contractors, design firms, and subcontractors has even led to the publication of blogs on several construction tech websites and her book, Green Building Design 101.