Construction Industry Booms and Costs Zoom

Nashville, Tennessee will always be known as “Music City, U.S.A.,” but with cranes sweeping the skyline and cones lining almost every thoroughfare, Nashville might also be called “Boomtown” right now. Like many other cities across the Southeast, businesses are moving to Nashville and families are following. More than 11,000 building permits were issued in the Nashville metro area since 2020[1], and several large corporations in a variety of industries have made their headquarters in Nashville. Such growth is music to the ears of a lot of people and creates great opportunities for the construction industry. There are, however, a few sour notes amid the symphony of machinery and hammering: construction costs are rising as quickly as those cranes in the skyline.

As construction booms, here are three issues causing the industry-related costs to zoom:

Housing Inventory

Home is more important than ever. One result of the COVID-19 was that families, forced to stay home more, chose to renovate their home or find another that better suited their needs. All the fixing-up and house hunting created a housing shortage of 52%[2], causing prices for existing homes to soar. Add to that the combination of low mortgage rates and 72 million millennials[2] looking to buy their first home, the construction industry should be in the driver’s seat, right?

Supply Chain

The pandemic has altered the supply chain for everything from lumber to appliances. That backlog adds extra costs and delays for construction companies. According to the National Association of Home Builders, higher lumber prices have pushed the price of an average new, single-family home up more than $35,000[3] — a cost many consumers find hard to swallow, even with low mortgage rates. Whether construction companies are building single-family homes or large commercial projects, waiting for materials to arrive on-site makes it harder to schedule crews, which means you risk losing skilled workers to the competition.

Labor

Perhaps the only good news is that your competitors are in the same situation. Even if you have the materials to build, many construction companies are having trouble finding crews to do the work. According to an Institute for Supply Management survey, businesses in the construction industry reported challenges finding and retaining skilled and unskilled workers, forcing some companies to turn down work because of the labor crunch.[4]

Combined, these challenges contributed 13.4% decrease in single-family home units being built.

In some parts of the country, commercial construction is also facing headwinds. In creating a remote workforce, some companies are forgoing large office spaces, reducing the scope of their projects and costs. And if commercial projects were initiated prior to the pandemic, some construction companies are facing a client’s change of heart or circumstances, making collecting payment problematic.

Those are just some of the known problems for the construction industry. An unknown issue facing the industry is corporate tax legislation. As changes loom on the horizon and the competition for workers remains competitive, now, more than ever, construction companies need a blueprint for how to move forward.

How DHG Can Help

Through collaborations with contractors of every size, DHG Construction is uniquely positioned to help construction company owners and management navigate rising costs and other challenges. In DHG, you gain more than 100 construction industry professionals who have helped create strategies for more than 1000 construction clients. That industry experience is integrated with our comprehensive planning, tax and advisory services to address your specific needs and business goals.

Understanding your market is key and our professionals can provide a detailed forecast of the appetite for construction and help you adapt your business strategy for those factors. Our DHG Construction team includes Certified Construction Industry Financial Professionals, former construction company CFOs and analysts and advisors dedicated to the understanding the latest trends and legislative updates in every state and Washington, D.C.

To learn how we will put our technical knowledge, industry intelligence and future-focused approach to create a customized strategy for you, please reach out to us.


[1]: https://www.wkrn.com/news/nashville-2021/nashville-sees-record-high-in-construction-permits-worth-4-6-billion-in-last-year/

[2]: https://www.globest.com/2021/05/27/housing-deficit-has-soared-52-since-2018-says-freddie-mac/?slreturn=20210427135922

[3]: https://www.cnn.com/2021/05/05/business/lumber-prices-home-building-costs/index.html

[4]: https://www.reuters.com/business/us-housing-starts-drop-sharply-april-2021-05-18

ABOUT THE AUTHORS

Aprille Bell
Managing Partner, Construction & Real Estate
Aprille.Bell@dhg.com

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