While price increases and product unavailability are posing challenges for residential and commercial builders across the country, demand for industry professionals and cost-effective solutions is on the rise—a trend that is expected to continue into 2022.
Builders are shifting how and where they purchase products, and they’re increasingly willing to try substitute products or shift to different distribution channels. In step with B2C trends, B2B contractors are adopting time saving measures for project management, job site delivery, and installation. For building materials manufacturers, these construction industry trends present unique opportunities to rethink your offerings’ true value to customers, according to the 2022 Building Products Customer Guide by The Farnsworth Group and Venveo. Retaining customer loyalty will be as much a measure of success in the years ahead as acquiring new customers.
Here is a closer look at the factors currently affecting the building materials industry and the outlook for builders in 2022.
Is Residential Construction Growing?
In 2020, there was a loss of contractor projects from approximately March to May, at the outset of the response to COVID-19. Many home and business owners put off improvement projects or new construction with baited breath to see how the real estate market would be affected, and some attempted a DIY approach to at least accomplish smaller tasks around their property since options for where to spend excess disposable income were limited. As a result, there is still pent-up demand for Pros to do the larger construction projects that were delayed during the pandemic, a trend reflected in 2021 activity and that will likely continue into the new year.
Professionals in the construction industry are busy. For example, only 39 percent of builders are currently accepting new jobs or projects, while a majority are booked out anywhere from one week to one month, according to the report. About 13 percent of builders are booked out from a few months to six months or longer.
The residential construction industry is also being impacted by investor sentiments at large. With intent to rent out properties while average rental rates are high and cost of debt is low, the surge of real estate investors buying up properties and hiring contractors to implement maintenance and property improvements has contributed.
This backed-up project funnel is inevitable, taking into consideration the combination of high demand from homeowners and investors, supply chain issues causing material constraints and limited labor creating additional challenges. However, it is probable for continued demand for residential and commercial Pros throughout 2022, as the housing market has become the safer option to invest in.
Where is Construction Booming in the US 2021?
Builders across the country are seeing demand for home improvement projects or new home builds, but there are certain states more affected than others. The states experiencing significant growth in 2021 include Florida, Texas, Arizona, Georgia, Washington and Nevada. With that growth, there is an increased need for residential developments, and that drives new construction.
While national population growth was lower in the 2020 Census compared to prior censuses, these cities and regions saw significant population influx from relocations:
- Boise, ID
- Johnson City, TN
- Knoxville, TN
- Chattanooga, TN
- Sarasota, FL
- Asheville, NC
- Myrtle Beach, SC/Wilmington, NC
- Spokane, WA
- Portland, ME
- Daytona, FL
- Greenville/Spartanburg, SC
- Ocala, FL
- Fayetteville/Bentonville, AR
- Tyler, TX
- Huntsville, AL
- Melbourne, FL
- Jacksonville, FL
- Texarkana, TX
- Dover, DE
- Pensacola, FL
Many of these movers sought out a place where they could purchase a home and get out of the rental market. This means that these are the areas where construction is apt to continue booming in 2022 in effort to bring the housing market back to equilibrium and cool property values to a sustainable level for first time home buyers.
Builders, who are understandably risk averse and facing high costs and squeezed margins should avoid suspecting another round of housing crash like 2007-2008. The market will likely cool in 2022, but the race for new affordable housing and the influence of investors ready to buy existing and new properties is also likely to continue.
Will Building Costs Go Down in 2022?
It’s no surprise the cost of building materials is on the rise. As reported in the Builder Products Customer Guide, about 43 percent of builders responded that product or materials costs were “somewhat more expensive” in the past 12 months than previous years, while 30 percent said they were “much more expensive.” Additionally, the average project cost “increased a little,” according to 54 percent of respondents, while 21 percent said average project costs “increased a lot.” This is due to a number of factors, namely supply chain issues and raw material availability.
Supply chain issues run the gamut from the difficulty in getting materials in port, unloaded and transported to distributors to last-minute deliveries to jobs sites and challenges acquiring raw materials for assembling finished products. One example is the micro-chip shortage for use in the architecture, engineering and construction (AEC) sector. The trucker shortage is another example. All of these shortages and supply chain challenges are expected to remain throughout 2022, so builders and contractors will need to raise rates to compensate for their increased product costs.
Builders also are seeing a high rate of skilled laborers exiting the market and a low supply of new skilled laborers entering the market. While the industry at large has been seeing this issue coming for years, adequate preparation was not made before 2020 and it became a much more pressing issue in 2021. This trend drives rising labor costs for current skilled workers.
75% of builders reported project costs to be higher from the previous year.
Looking ahead to the future, builders are facing inflation caused by increased cash in the market—with simultaneously less goods being produced—and speculation that the Federal Reserve will increase interest rates in 2023. Share of wallet is not expected to increase, but average material and project costs will, so customers will be forced to make spending compromises. As such, 2022 will be a year of delicate, but firm decision making regarding business strategy, land acquisition, and headcount for many builders.
On the manufacturing end, company reps must be ready to proactively reach out to customers one on one to discuss anticipated price increases for building products before they happen. This strategy allows for transparency that is crucial for retaining customers and acquiring new ones in light of the circumstance. Pros know the price increases are coming, so manufacturers simply need to communicate early and often.
How Are Builders Dealing With Product Unavailability?
Material costs are one challenge that will remain into 2022, but product availability issues—which took root in 2021 and are projected to continue into 2022— are of more concern in the short term. Builders are having to make decisions about how to complete commercial and residential projects that are waiting on delayed materials, and costing them money the longer the delays persist.
According to the report, about 29 percent of respondents said they sometimes experience availability issues, while 27 percent responded “frequently” and 11 percent responded “very frequently.”
When asked what was done when a product was unavailable, a majority—or 38 percent—of builders ordered or waited for their preferred product to arrive, and about 34 percent went to a different retailer or supplier to try to find the product. However, about 22 percent were willing to purchase a different brand or product and 6% made no purchase at all
Additionally, convenience has caused builders to increasingly buy and/or order online. Their pivot to online purchasing has been sustained from the start of the pandemic through 2021. In addition to channel shift, brand shift has also occurred at a high rate in 2021. One in three Pros switched brands due to a lack of product availability, a trend that will remain consistent or grow in 2022.
With builders now, more than ever, willing to switch vendors or try new brands and substitutions for desired products, there are opportunities for growth for manufacturing companies who are capable of filling the gaps and providing those alternatives.
This isn’t necessarily bad news, from a manufacturing perspective. When experimenting with an alternative, about 93 percent of builders responded they were “somewhat” or “extremely” satisfied with their new brand and 75 percent said it performed “somewhat” or “much better” than their usual brand.
Worth note also is the number of Pros who switched brands due to quality; one in two. Manufacturers need to be cautious to decrease product quality in effort to maintain product price against nationwide inflation. It is advisable to maintain quality instead, communicate well with your customers, and increase prices to compensate. Thinking long term is the objective in this.
Also, the key here is once again transparency and providing your distributors with as much information about your inventory and ongoing product availability as possible, so they can relay it to their customers
Planning for Builders’ Needs in 2022
Builders are dealing with a number of external challenges, from delays in the supply chain and product unavailability to increased prices and resurging demand for professionals. Building materials manufacturers must be prepared with the innovative offerings, quality products, diverse distribution channels, and customer-centric marketing methods in 2022 to meet builders where they’re at. Request access to the full 2022 Building Products Customer Guide.