2021 Construction Season: What Is the US Market Outlook?

Understanding where we are, and challenges for the AEC industry…

The year of 2020 was incredibly successful for the construction industry. With over $900 billion added to the U.S. economy and employing over 7.64 million people within the first few months, according to Deloitte, construction reached its highest profits since the 2008 recession. The COVID-19 pandemic inevitably impacted the industry causing the market to lose approximately $60.9 billion in GDP and a loss of over a million jobs.

Businesses varied in regards to how they handled such barriers but regardless, almost all companies faced significant cost and margin pressures alongside the delaying of projects, cancellations, struggles obtaining permits, the inability to capitalize on technology, and the difficulties of being able to afford increasing material and equipment price tags.

Despite this toll that the construction market encountered and continues to endeavor, many economists believe that 2021 will be a rather promising year for the industry. Estimations indicate that the American economy shrank about 4-5% in 2020 and therefore a bounce back seems as if it should be on the nearby horizon. COVID-19 vaccines, the $900 billion relief package recently signed by former President Donald Trump, and businesses engaging in capital investments seem to serve as ideal indicators of optimism. Further stimulus from the Biden Admin is still to hit the pockets of Americans.

Current Challenges for the Construction Industry

Of course some challenges remain. The coming months are expected to be particularly strenuous on contractors and subcontractors as the already back-logged pipeline of projects hits full swing for the prime peak construction season upon us. Due to the markets continuously getting more competitive and volatile along with the covid restrictions it is predestined that significant subcontractors will go out of business, deal with trade labor shortages and or ballooning project budgets. Pressure is and will mount for general contractors to self-perform more work than they usually would. Other major issues architects, engineers and firms alike will be grappling with will be obtaining financially achievable insurance and bonding. Engaging and re-engaging workforce’s and employees back to work.

With the anticipated situations and climate including the decrease of subcontractors, general contractors will need to hire employees once projects are back on the marketplace. However, economists and analysts say that companies have yet to do so considering that many new proposals and projects have yet to engage in their first steps of planning or construction. Many propositions are being pushed aside and businesses are not hiring unless they have a specific job to put someone on. Additionally, companies do not want to invest in individuals who they would have to train as time constraints may not allow it. Contractors believe that they will have a trying time finding motivated and skilled workers considering how in past recessions, those who lost their jobs in the construction business left the industry altogether.

Vaccines

The Equal Opportunity Employment Commission along with a panel of construction lawyers agreed that employers could require workers to be vaccinated yet the implications of vaccinating those who refuse could formulate safety concerns for contractors.

Infrastructure and Capital Projects

Increased infrastructure and building projects are however predicted to increase and inevitable not to continue at a escalated pace. President Joe Biden pushing his Build Back Better enterprise could benefit contractors since the multi trillion-dollar infrastructure bill includes a vague definition of infrastructure.

Additionally, businesses and clients are expressing interest in expanding their offices away from their headquarters which are typically located in heavily populated cities. They’re also looking into building more manufacturing and distribution facilities as the commercial markets are rebounding.

Affordable Housing and Multifamily Construction

To stimulate the housing market, governments have lowered interest rates and reduced taxes on buying houses. Future home buyers are especially nervous in taking on such a big commitment during these dire times particularly when employment security fluctuates day by day as the affordable housing markets are in deep in demand of non-existent inventory so desperately needed prior to the pandemic but even more now.

As the demand for housing slowed significantly during the midst of the pandemic, builders and contractors have eliminated their employees; a decision which could potentially backfire in the future. Once the demand returns, employers may not be able to rehire such a skilled individual again therefore leading to further labor shortage.

Throughout the U.S., housing prices are rising at an incredible rate and quickly as a result of the supply and demand for housing. People have been taking advantage of the decreasing mortgage rates which have made the cost of home buying cheaper. However the supply of houses is considerably low as many have taken their homes off the market or have chosen not to list their houses due to the uncertainty of the year. Prices have as a result soared.

The National Multifamily Housing Council (NMHC) has reported that 55% of multifamily construction projects are experiencing delays. 76% of construction firms working on these proposals are encountering delays in permitting while 59% say they are already seeing delays in projects which have already started undergoing construction.

The NMHC has also disclosed that multifamily development costs have ballooned over 35% since 2018. The rising price of fuel, copper, steel, aluminum, and lumber during the pandemic alongside increased labor costs, and tariffs for imported material, the cost for development is sure to skew away from affordability.

Construction Delays & Cancellations

Nationwide, the COVID-19 pandemic resulted in infrastructure projects which totaled a staggering amount of $9.6 billion to be either delayed or cancelled. Sixteen states have announced that $5 billion worth of construction have been postponed or dismissed and that 20 local governments have put off projects collectively worth an estimated $4.54 billion. Transportation authorities and local governments in 44 states project declining revenues.

In June 2020, 32% of contractors reported having to cancel or suspend projects among the 2020/2021 year. That percentage increased to 75% in November and most recently 88% in January 2021.

Additionally, 64% of contractors have stated that due to the pandemic, projects are taking much longer than initially anticipated. 54% of contractors also say that the costs have been higher than originally expected.

Materials, Lead times & Increases

Considering that the U.S. receives over 30% of its building materials from China, it is important to monitor how they are being impacted by the virus. China has come across issues with cargo movement, factory shutdowns, and travel restrictions. Throughout 2020, cargo volume from China at U.S. ports dropped 20% due to supply chain disruptions.

Many firms expect the demand for construction to dwindle as a result of the high amount of projects which have been either delayed or cancelled in their entirety. Very few firms therefore believe that the industry will recover from the pandemic anytime soon. Other independent analysts predict a backlog that is set to boomerang stressing supply chains to the max this season. See here https://bylt.news/us-steel-trends-and-forcasts/ and https://bylt.news/lumber-brief/

Municipal & Government Budgets

Major infrastructure projects have been halted during the pandemic and the seemingly impossible balance between construction budgets and COVID-19 responses continue underway. State and local government revenues are declining meaning that state agencies will have less money to fund infrastructure projects. It is anticipated that government revenues will go from $155 billion in 2020 to $167 billion in 2021 and $145 billion in 2022. Firms will have to turn to the federal government for further monetary assistance in completing and funding construction projects and developments. Groups also are turning to the government to intervene in lumber and steel pricing affordability.