The US Census Bureau’s Small Business Pulse Survey (SBPS) has been active since April 2020 in an effort to track changes in business conditions during the ongoing COVID-19 pandemic. Each month, Levelset will be taking a look at key issues for the industry, as illustrated by the data of the SBPS.
Supply delays continue to be an issue for the construction industry
The construction industry’s chain of supply has been disrupted copiously during the pandemic, and this significant difficulty continues for contractors, suppliers, and business owners.
Supply shortages and delays have put pressure on contractors as demand has risen during the pandemic despite a lack of supply — demand for residential building hit record highs in the past year, while mortgage rates simultaneously hit record lows.
As per Mike Dishberger, CEO of Houston’s Sandcastle Homes (and a former president of the Greater Houston Builders Association), “People had nothing better to do, I think, than stay at home and decide they want to buy a new house or remodel. So, demand has exceeded supply, and when that happens, prices rise.”
“The buying public is not going to accept a 25% increase in the cost of homes, and as the price of homes get more expensive, fewer people can buy them,” Dishberger continued.
A recent survey conducted by the National Multifamily Housing Council pointed to increased concern among builders about supply chain issues and increasing costs, with 40% of respondents citing significant price increases for their most impacted materials.
Caitlin Walter, vice president of research for the National Multifamily Housing Council, noted that “Material shortages and cost increases will lead to development cost increases and potential project delays…longer term, these disruptions could challenge the already supply-constrained market and threaten to derail housing affordability efforts. New units need to be built at a variety of price points, and cost increases only make building those units more difficult.”
This imbalance between high demand and low supply has been especially difficult for the supply chain itself — as per an end-of-2020 report from the United States Chamber of Commerce, 71% of contractors surveyed were facing at least one material shortage.
Lumber shortages continue to be a particularly major problem nationwide amidst the record levels of demand, and both steel and electrical supplies have faced steep price increases in the past year.
Despite hopes of a positive shift in the availability of materials, data collected from May 24–30, 2021, points to some major continuing issues for contractors.
59.7% of respondents reported domestic supplier delays — a huge jump over the national average of 36.3%. Sadly, these aren’t just domestic issues — 19.1% of respondents are also dealing with foreign supplier delays.
Steve Carreira, Vice President of Humphrey’s Building Supply in Middletown, Rhode Island, spoke of the impact of these supply chain issues on small businesses, saying “You couple the large demand with a labor shortage and a materials shortage, and it was sort of disastrous…within a short period of time, I would say within four weeks [of the start of the pandemic], this industry figured out in a real hurry that we’re going to need [these materials].”
These issues may be part of a larger trend, as well. In the February 15–22, 2021 edition of the survey, 36.8% of respondents noted domestic delays, while the April 12–18, 2021, edition saw 48.1% of respondents note domestic delays. Over that same time span, the number of respondents noting foreign supply delays jumped from 10.1% to 14%.
Carreira noted that the issue isn’t solely related to the materials shortage, but also the multi-faceted aspects of delivery which are impacting contractors: “There are other things involved in pricing…There’s raw material shortages, products that are coming from overseas that just aren’t getting here.”
“You’ve heard about other industries struggling to get products, but that’ll slow things down as well and also increases in freight, whether it’s from overseas shipments or domestically…In this country, there’s a real shortage of drivers, so there’s not enough drivers to move the products around,” he continued.
These supply delays are also pushing contractors to look for alternative routes for materials, which is a major source of difficulty in itself. 32.6% of respondents to the SBPS are having difficulty finding alternative domestic suppliers, while 10.6% are struggling to find alternative foreign suppliers, showing that contractors aren’t yet able to simply find replacements for their main suppliers when they need backup plans.
Levelset’s Tom Scalisi wrote in September 2020 about the ways that contractors may have to adapt in the face of shortages, saying of the current lumber shortage: “If your company builds outdoor structures, it might be worth checking into other materials to offer your customers. With inflation, you may find redwood or cedar to be relatively affordable alternatives. They may also be much easier to get your hands on.”
“Customers may balk at the increased job cost initially. But the reality is that pressure-treated [lumber] just isn’t available right now, and they’ll have to deal with it and the increased cost of their project,” Scalisi added, focusing on some of the concessions and compromises contractors and consumers may have to make.
All of this, of course, puts more pressure on contractors’ operations, and can have serious repercussions for production. 23.9% of respondents to the Pulse Survey are reporting production delays, while 35.7% are reporting delays in delivery to consumers as a result of supply-chain problems.
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Revenue changes may be stabilizing despite supply chain struggles
While contractors’ operations are still being significantly affected by the repercussions of the pandemic, there is at least some data that shows a shift towards more even changes in revenue for business owners. As Caitlin Walter noted, “it’s important to note that [price increases in the supply chain] do not mean that inflation is here for good. Rather, the current issues may only persist in the short term.”
Mike Dishberger added that things could continue to improve soon as a product of a hopefully-improving supply chain: “There’s already some sign, based on futures markets, that lumber is going to be down [in cost] by the end of the year.”
Data from the period of May 24–May 30, 2021, showed that only 20.3% of respondents noted that their business has had a negative change in revenue — a drop of almost 48 percentage points from the survey’s first circulation period.
Information from December 28, 2020, to January 3, 2021, showed 35.3% of respondents noting decreased revenue, and data from April 26, 2020, to May 2, 2020 — the survey’s first period of information — had a staggering 68.1% of respondents with decreased revenue.
While revenue changes may be stabilizing, that isn’t all for the better: So far, revenue increases haven’t been a big part of respondents’ experiences. In the period from May 24, 2021, to May 30, 2021, only 8.6% of responding business owners noted an increase in revenue.
Though this is an increase from the survey’s original number of 3.9% of respondents (from the period of April 26, 2020, to May 2, 2020), this statistic has largely hovered in the 6%-8% range for the duration of the pandemic. In fact, this number reached its peak so far in June of 2020, making its way up to 14.4% of respondents.