Spring small business trends
In this post, we’ll discuss these trends and their potential impact for residential general contractors, residential remodelers, and tradespeople.
Mar 24, 2023
With the first quarter behind us, 2023 is shaping up to be an exciting year for U.S. construction. The industry continues to grow, despite ongoing macroeconomic uncertainty, with U.S. housing starts projected to rise north of $1tr in 2023. This year, several trends continue to be top of mind for builders, including interest rates, labor availability, and supply chain stabilization. In this post, we’ll discuss these trends and their potential impact for residential general contractors, residential remodelers, and tradespeople.
Interest rates are a significant factor in the construction industry. They affect the cost of borrowing, and consequently, the cost of construction projects. Interest rates have been low for several years, fueling expansion across the U.S. housing markets; and now, with increases in inflation, interest rates have been slowly rising. Despite the latest uncertainty in the financial sector, the Federal Reserve recently raised the benchmark interest rate target by 0.25% to 4.75 - 5.00%. This increase, while seemingly small, can have a significant impact on construction projects.
For customers, higher interest rates generally translates to a greater mortgage and debt burden - putting more expensive homes, renovations, and amenities out of reach. Typically, one could expect home prices and building costs to decline in response to higher rates, right-sizing to consumer purchasing power. Home prices fell year-over-year in February for the first time in 11 years, however, opinions are mixed on where prices will trend for the balance of 2023. While the risk of a recession looms for 2023, there are a number of factors that may continue to buoy home prices and drive continued activity and demand for builders. Housing supply continues to remain constrained, and many homeowners who locked in sub-3% mortgage rates prior to the COVID-19 pandemic are reluctant to move. While we continue to hear activity and demand for builders remains high, if interest rates continue to rise, we may see a slowdown in new construction projects this year.
Another top of mind trend for builders this year is labor availability. The construction industry has long struggled to attract and retain skilled workers. The problem has become more acute in recent years due to several factors, including an aging workforce, and a lack of interest among younger workers. Additionally, COVID-19 has exacerbated the problem, as many workers have left the industry or retired early.
Unfortunately, the dilemma may reach a critical point in the coming years with nearly 40% of the construction workforce expected to retire by 2031, according to the National Center for Construction Education & Research.
The shortage of skilled labor has several implications for the construction industry. First, it can lead to increased costs for contractors. Skilled workers are in high demand, and as a result, they can command higher wages. Additionally, the shortage of skilled labor can result in delays in project completion times because contractors may have difficulty finding enough workers to complete the job on time.
To address the labor shortage, many contractors are turning to technology - both to optimize building practices and also create more back office efficiencies with digital estimates, invoices and payments. For example, some are using drones and other unmanned aerial vehicles to perform inspections and surveys. Others are using 3D printing technology to create building components off-site, which can reduce the need for on-site labor. While these technologies can help address the labor shortage, they are not a complete solution. Contractors will still need to find ways to attract and retain skilled workers. New builder platforms and builder payments tools are also being seen by some as effective ways to maintain strong relationships with subcontractors and employees through better transparency and faster payment delivery cycles.
While COVID-19 significantly disrupted supply chains around the world, many in the industry are seeing more stabilization in their local supply chains. Even though some items and materials continue to have longer than average lead times, many builders have seen a return to “normal” in the past several months. During the pandemic, shortages of materials such as lumber, steel, and copper resulted in increased prices and delayed projects. Additionally, disruptions in the transportation industry made it more challenging to get materials to job sites.
Many contractors have explored alternative sourcing strategies to address supply chain issues. For example, turning to local suppliers to reduce their dependence on global supply chains. Others explored alternative materials, such as engineered wood products, that can be produced more sustainably and with less waste.
2023 is poised to be an exciting year in construction. While there are many uncertainties and challenges posed by rising interest rates, labor shortages, and supply chain issues, the demand for new homes and services from residential general contractors, residential remodelers and skilled tradespeople remains high. New technologies continue to be deployed and adopted, such as artificial intelligence (AI), which are creating new opportunities and pathways for growth and innovation for builders across their business.
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