As COVID Begins to Fade, Construction Woes Linger

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Robison Wells

Despite the blockbuster residential market, as a post-vaccination country re-opens for business as usual, construction industry problems remain. Two issues hang over the construction industry's head: material and supply chain and labor shortages.

Material shortages and supply chain issues translate into rising construction costs. Lumber prices now dwarf the usual 15-20% increases expected in the market.

According to one Texas-based company, Century Mechanical Contractors, "Owners are coming back and saying they want to build, but they set their budgets two years ago," secretary and treasurer Diane Mills said. "What might have cost $100,000 if they started last June is now probably closer to $160,000. So they're even having to pull back again and rethink what they're doing because it's out of budget."

Material price increases show no sign of slowing. According to the Associated General Contractors of America (AGC), prices for goods jumped 3.5% from February to March, 12.9% from March to April.

"These material cost increases—steep as they are—tell only part of the story," said Ken Simonson, AGC's chief economist, in a statement on Friday. "They are based on prices the government collected a month ago, and they fail to capture the notices contractors are receiving daily about longer lead times, shipments held to a fraction of previous orders, and other challenges."

The second problem, labor shortage, should not surprise anyone in the construction industry. According to estimates from the U.S. Bureau of Labor Statistics, construction companies will require 430,000 more workers in 2021 than needed in 2020. Because of the high demand for new construction, the industry might require as many as one million new workers despite increased costs and higher-growth model projects. Currently, the construction industry employs 7.8 million workers.

Anirban Basu, the Marcum chief economist, wrote in Marcum JOLTS Analysis April report: "When the pandemic began, some thought (and hoped) that the massive job losses observed in March and April would mitigate the skilled labor shortages that have frustrated construction firms for years. That simply hasn't happened to any meaningful degree."

Construction companies have tried different solutions—outreach to laid-off hospitality workers, apprenticeship programs for new high school graduates—but many experts claim that the results of these efforts may not keep up with demand.

Both problems put together—supply chain and labor shortage—position the country for unprecedented construction rate increases.

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