The pandemic has been a roller coaster for businesses in every industry, but construction has had a wilder ride than most. When the virus first erupted in 2020, the industry came almost to a standstill. Now, although construction demand has hit a strong rebound, many contractors are confronting new problems like labor and supply shortages.
With so much uncertainty still ahead, it’s useful to look at where the past two years have taken the contractor industry. Beyond that, we’ll look at what 2022 might bring, and a few ways that construction contractors are preparing for it.
Four Ways COVID Affected the Construction Market
- Supply chains unraveled, and prices increased.
The pandemic disrupted supply chains badly and continues to do so. Even materials as basic as trash bags are often in short supply, to say nothing of materials like lumber, drywall or heavy duty plastic sheeting. Every aspect of the construction supply chain — from raw materials to logistics — felt the pressure of shortages and port closures. Current tariffs have impacted international trade, driving up the costs of building materials.
- The residential contractor market saw an explosion of demand.
Soon after the initial wave of lockdowns eased, the pandemic and the movement to remote work turbocharged the housing market and increased home prices to record levels. Residential contractors literally couldn’t keep up with the demand, so much that commercial contractors stepped in to take some overflow work. In fact, many residential contractors are still backlogged heading into 2022.
- The commercial contractor market struggled.
Commercial real estate took an even harder blow than the residential market at the beginning of the pandemic, and its recovery hasn’t been nearly as strong. To make matters worse, commercial construction spent most of 2021 in a state of limbo as shortages in materials and labor continued to worsen. The Delta variant surge hit commercial construction particularly hard, and the commercial real estate market remains soft and unsettled.
- Skilled labor shortages left contractors understaffed.
A shortage of skilled trades workers had been escalating for years, but the pandemic brought the issue to a crisis point. Many older workers in the trades took the last two years’ drastic changes as an opportunity to retire, and there aren’t nearly enough younger workers in the trade to fill their positions. These factors have produced labor shortages that further exacerbated the construction backlog.
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Five Predictions for the Construction Market in 2022
- Contractors may need to reimagine their supply chains as they struggle with shortages.
First, the bad news: Contractors will likely keep battling supply chain dysfunction throughout 2022. Many building materials will still be in short supply, and problems will appear in new and unpredictable places. Communication will be key for both suppliers and contractors as they struggle to work together in one of the most challenging logistics markets ever.
Many U.S. businesses have taken the opportunity to bring their supply chains closer to home. For example, rather than importing contractor bags and other essential supplies from Chinese wholesalers, some contractors have turned to U.S. suppliers instead. Working with a U.S. supplier can also offer advantages in customer service and, of course, shipping speed.
- Demand looks strong, but shortages could hamper productivity.
Analysts predict strong demand for construction in 2022, particularly in the residential market.
Although the housing market will come down somewhat from the wild highs of 2021, demand for residential construction will remain strong. The news is more mixed for commercial construction, which has experienced a slower recovery.
However, shortages of all kinds are already backing up contractors and hurting productivity. Until supply chains stabilize and labor shortages ease, it will be difficult for contractors to work at their maximum capacity. Contractors must effectively manage job sites and client communication to keep projects on pace as much as possible.
- The new infrastructure bill offers hope for the commercial sector.
The infrastructure bill that President Biden recently signed into law could be a major boon for commercial contractors. Soon, billions in federal contracts to repair roads, bridges and other infrastructure will be up for bids. Commercial contractors will need to ensure that they’re prepared to bid on these contracts if they don’t want to lose out on valuable opportunities.
Also included in the infrastructure bill are badly needed investments in logistics capacity, such as expansions of port terminals. Hopefully, in addition to providing years of plum projects, these upgrades will build a sturdier supply chain in the long-term. However, many of these projects might face a long and difficult road if the skilled labor shortage doesn’t ease soon.
- Managing labor shortages will be a determining factor in contractors’ success.
Finally, contractors will continue to do the best they can to work around the labor shortage. Offering competitive pay and benefits should be a given, but it has to be balanced with the ever-present need to hold costs down. Unfortunately, good pay and benefits only go so far when there simply aren’t enough skilled workers to begin with.
The true solution lies in a coordinated, long-term push to steer more workers toward the skilled trades. Young people need to have their interests in the trades encouraged and developed, from early childhood all the way up to job placement programs to help match trade school graduates with employers. However, this course will take time to bear fruit, as you can’t create thousands of trained professional workers overnight.
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Like many other industries, construction will continue to experience choppy waters from the ongoing effects of the pandemic. The silver lining, however, is that unprecedented levels of demand mean that opportunity is there for those who are equipped to seize it.