High Cost of Materials Lead to Empty Lots

Across America, empty lots haunt neighborhood streets and cul-de-sacs. Dirt remains untouched by human hands or machines. With the demand for home buying at an all-time high, why are construction sites eerily quiet? Rising construction costs, combined with skyrocketing mortgage rates and seemingly endless supply chain disruptions, continue to affect the market for new constructions, pushing the housing market closer to a recession.

So, What’s Happening?

In September, the National Association of Home Builders was quoted as saying, “A sharp decline in single-family home construction is the latest indicator that the housing slowdown is showing no signs of abating.” The article also stated that starts on single-family housing are on pace to be at their lowest reading since June 2020, while new-home sales have fallen to their lowest level since January 2016. Housing affordability fell to its lowest point since the Great Recession.

“The decline in single-family starts is reflected in builder surveys, as housing demand continues to weaken on higher interest rates, while builders continue to grapple with higher construction costs,” - Jerry Konter, chairman of the Washington, DC-based NAHB

Why?

Since 2020, the construction world has faced major challenges due to material price increases and supply chain delays. These issues are still prevalent after more than two years since the pandemic started and continue to grow. Home building contractors and project teams have worked to mitigate the impacts during the past few years by adopting software solutions to simplify their internal processes and reduce human error. The challenge hasn’t eased for contractors and those in residential home construction. Supply-chain issues seemingly have no end.

As the cost of construction materials continues to increase, industry leaders are forced to make difficult decisions on the scope and schedule of their building projects.  Recently, The Associated General Contractors of America released an industry report showing two-year increases in key materials per the producer price indexes (PPIs) provided by the United States Bureau of Labor Statistics. The report showed that significant construction materials needed in all phases of construction projects, from foundations through finishes, have been severely impacted.

When building a home, almost no material is more critical than lumber. After the price returned to normal in 2021, recent California wildfires and tariffs from Canada have driven lumber costs higher once again. America and Canada are working to lower tariffs to ease costs for builders buying materials from Canada. But ask anyone in the home construction industry, and you’ll hear the damage has already been done, as it’s more expensive to build homes than ever.

Another factor affecting material costs is gasoline. Delivery trucks need gasoline to maintain routes for delivering materials and goods. Americans across the country felt rising gas prices drained their wallets well before the Russian invasion of Ukraine. Since the war has continued, prices have skyrocketed, causing many construction projects to go over budget. The national diesel fuel average is $5.794 per gallon, which is only .22 cents lower than the highest recorded average price of $5.816.

What’s Next?

Builders are trying new ways to mitigate rising costs and supply chain issues. Many contractors have chosen to increase bid prices. At the same time, others are improving their in-house documentation processes and adopting organization software to minimize costly mistakes. One of the biggest costly mistakes is human error which can come at any time in a project’s timeline and from anyone, including owners, contractors, custom homebuilders, land developers, and subcontractors. Having the right software in place ensures your business stays safe from human error.

The residential home construction industry is unique and the technology that you use to run your business should be built to serve those unique needs and characteristics. Builders like you have been making investments in easy-to-use, cloud-based software that keeps data safe and secure in a single platform while accessible from the office, home, or at the job site. These solutions reduce errors, improves scheduling, eliminate redundancy, decrease build cycle times, and minimize variances.

Be sure to search the marketplace to find the right software solution for you. Choosing the right one will help you schedule accurately, communicate efficiently, auto-generate work orders, and manage multiple vendors and leads—giving you back your time to turn silent lots into bustling, busy construction sites. Also, it will provide your customers with easy-to-use software to manage their home construction.

While there is no timetable for when supply-chain issues will end, being able to adapt and add software solutions to your business are efficient starting points to mitigate unforeseen problems and get your crews back to work.

Want to learn more about trends you need to know? Check out our recent blog post on land shortages and how builders can embrace innovation to combat them.