Current Challenges in Construction Industry
Years ago there was a big spike in expenses for the construction industry. Those expenses were in the form of materials. There was also pipeline and distribution problems, and also in labor where there was a shortage of quality trades people. The remaining people that are in the industry had higher salaries.
Impact of High Building Costs
Well, according to Pro Builder industry publication, materials prices are still high and building costs are still elevated year over year. Lumber, by itself, went up 11%. This does not bode well for the housing market or even construction market.
Decision Making for Property Owners
As a licensed general contractor, we see this all the time. More and more residents and property owners are looking at what their decision is for buying a new house, renovating their old house, adding on to their existing house. At the bottom of the market, affordable houses are very difficult.
Challenges with Permitting
Material prices go up and also the permitting costs go up. One of the biggest costs of permitting is not so much the price you pay for the permit, it’s how long it takes. For example, if you go through the permit process and it’s going to take you 8 to 12 months, each one of those months you have carrying costs. You have carrying costs of the property, your insurance costs, your equipment, staffing. So the longer it takes, sometimes the price of the delay is more than the price of the actual permit.
Persistent Issues in Housing Market
There’s no real quick fix to the trouble of affordable homes in the housing market. Interest rates have been hovering in the mid-sixes around seven. That’s not going to change anytime soon. The construction costs aren’t going anywhere, and the cost of labor is not going to go down just because of inflation. The biggest thing is getting these permits and these projects through the regulatory process to get them approved with environmental, whether it’s infrastructure or anything else. Otherwise, it doesn’t matter how cheap the construction is if you can’t get the deal done, you’re going to be dead in the water to begin with.
