Why are Builders Struggling to Keep up with the Demand for Homes?
After an initial period of disruption, the housing market has started booming amid COVID-19. Demand for homes is rising across the country, and while this would typically be a positive sign for the industry, it’s created a pressing issue. The nation now faces a housing shortage as supply struggles to keep up with demand.
Some level of scarcity is expected with any rise in demand, as the former typically leads to the latter. Interestingly, though, the current shortage isn’t just due to the unavailability of previously owned homes. Builders have had difficulty constructing new ones on time, too.
Here’s a deeper look into this issue and how construction firms can overcome it.
Skyrocketing and Shifting Demand
The most straightforward factor behind the housing shortage is the recent clamor for homes. The Federal Reserve cut its interest rates during the pandemic, which made other rates across the nation fall too. These low prices enticed many consumers who were already considering purchasing a home to act quickly and buy now.
Demand also shifted as it rose, with more people looking to move into lower-density markets. As more companies enabled people to work from home, many of these workers moved away from large cities to more affordable areas. Consequently, the cities that saw the highest growth in demand were often those with a smaller supply.
These factors have combined to create a record surge in housing demand that would be difficult for any market to keep up with. This was the start of the industry’s supply problem, which other COVID-related factors exacerbated.
Extensive Backlog of Projects
Though demand for new homes spiked, many builders couldn’t start construction in these areas immediately. Many building firms were already behind on other projects when this housing boom started. This backlog makes it challenging for companies to fulfill new requests and address the scarcity.
Some states and cities required virtually all construction to stop at the height of the pandemic. Even though most areas deemed it an essential service, many restricted the types of construction that could occur. For example, in Pennsylvania, only projects that supported health care providers or emergency repairs could continue.
Since so many builders had to either stop or slow their operations, they fell behind schedule. This backlog, in turn, created a domino effect of time issues as demand for new homes kept rising.
One of the most persistent obstacles the construction industry has faced over the past few years is the labor shortage. A 2020 survey revealed that 81% of construction firms are currently having a hard time filling positions. This lack of labor makes it difficult to clear backlogs and start new projects on time.
Construction crews have dealt with this shortage for years, but the pandemic exacerbated the issue. COVID restrictions limit the number of workers who can be on-site at a time. As a result, companies can’t use all their already diminished workforce at once.
With fewer workers and less populated worksites, construction companies struggle to maintain productivity. In turn, project completion times slow, making it more challenging to build new homes in time to keep up with demand.
Limited Available Land
Another obstacle that stands between builders and fulfilling the new demand for homes is a shortage of available land. As the call for new houses continues, companies are running out of open lots to build on. With the housing shortage only increasing, this issue becomes more severe over time.
Even before the COVID housing market boom, buying and preparing land was a lengthy process. Builders often purchase lots a year before starting construction — sometimes longer to obtain all the necessary permits. Much of the land that builders own is still in the preparation phases, and getting new lots is a challenge, given rising demand.
As companies racing to build homes buy more of these lots, it becomes increasingly challenging to find and prepare land for new projects.
Supply Chain Disruptions
Like many other industries, construction has also faced significant supply chain disruptions this past year. Just as COVID restrictions limited how many workers could be at construction sites, they did the same for warehouses, factories and logistics centers. These disruptions led to lost productivity, which slowed the supply chain and project completion.
The construction industry’s reliance on international suppliers proved a substantial obstacle when COVID-19 struck. As much as 30% of building materials come from China, and many companies source stone and glass from Italy. These two nations were some of the hardest-hit early on in the pandemic, leading to significant disruptions and delays in supply chains that relied on them.
These disruptions have led to material shortages, slowing builders down further. Even if construction firms have everything else in place, they can’t complete these new projects without materials.
How Builders Can Overcome These Challenges
These obstacles are considerable, but builders can take some steps to work around them. While companies typically wouldn’t want to slow demand for their services, it may be necessary now, given the housing shortage. Raising prices and interest rates can help slow sales, giving construction teams more time to catch up.
Builders can mitigate some supply chain issues by getting materials from domestic sources. These suppliers can provide next-day delivery in some situations, which would be impossible for most international alternatives. Any disruptions that occur won’t have as lasting an impact, either, since there’s less distance to travel.
While the construction industry has traditionally avoided adopting new technologies, now may be the time to change. Tools like digital twins, drones and data analytics can help streamline processes, find ways to improve productivity and shorten completion times. These efficiency benefits allow builders to finish projects faster, helping keep up with housing demand despite labor shortages.
Similarly, new techniques can help builders finish homes in less time. Modular construction, which relies on off-site prefabrication, leads to 30%-50% faster completion times than traditional approaches.
The Construction Industry Faces a Challenging Future
Eventually, this sky-high demand for homes will die down, and the market will level out. The construction industry will get through this, but it will take time. Builders will have to adapt to changing times and trends to stay afloat in the meantime.
The pandemic will leave significant, lasting challenges for builders and homebuyers alike. If construction companies can become more flexible and resilient, they’ll see success despite these changes. The sector will take time to recover, but with enough planning and action, it can emerge stronger than ever