Residential Construction Industry Outlook

The past two years have shown the resiliency of U.S. homebuilders as they’ve continued to navigate ongoing market volatility and economic challenges outside of their control, such as supply chain delays and material shortages. Even with these looming threats and constant disruptions, demand for new homes is still at an industry high and home builders are investing in their business to meet this accordingly, with continued growth expected throughout 2022. In fact, according to ECI’s recent Residential Home Construction industry survey, 72 percent of homebuilders expect to build more homes this year than in 2021.

To get a clear picture of the current building and construction market, we must look at what challenges homebuilders are facing today, the solutions helping them overcome these obstacles and their expectations for the future of the industry.

Challenges

Like many other industries, homebuilders ranked the pandemic as the greatest threat to their business, according to the ECI survey. Due to a variety of contributing factors and obstacles, such as the increased demand for single-family homes and a lack of materials to meet those demands, many homebuilders were forced to make various changes throughout their organizations, including increasing prices and making more conservative financial decisions. As demand continued to grow in 2021, the survey reported that four out of 10 builders indicated the demand outpaced their organization’s ability to keep up.

This high demand has resulted in challenges for homebuilders battling the national trade shortage. In fact, 42 percent of surveyed builders shared that, in a typical month, homes have sat idle one to five days often due to lack of trades available. That said, challenges such as price increases and long wait times will likely carry on.

Homebuilders will continue to face challenges that are out of their control throughout 2022 as demand and growth continue to increase. While it appears the worst of the pandemic has passed, the long-tail effects will continue to be felt for at least the next year ahead. Material shortages and delays remain a top concern for homebuilders in 2022, according to the ECI survey, followed by estimates and schedules.

Solutions

Over the past two years, many industries have taken advantage of digital transformation and have looked to leverage technology solutions to aid in some of these challenges. However, homebuilders have appeared hesitant to adopt recent technology solutions to help manage and grow their businesses, according to the survey. Only one in five increased their investments in technology infrastructure as a way of managing pandemic related challenges.

Among those who did adopt technology, the most popular systems were:

• Project management (60 percent),
• Homebuilder software (51 percent)
• Contractor management (47 percent)
• Customer relationship management software (36 percent)

These solutions help homebuilders better manage operations, keep a tighter rein on supplies, schedules and costs, and mitigate the chances of pandemic threats from becoming unmanageable again.

When it comes to the national trade shortage, the solution will not come overnight. However, there are ways for homebuilders to be proactive and help ease the impacts, such as establishing and ensuring strong relationships with the trades that they do have. To survive and grow their businesses, homebuilders and their trades and suppliers need each other. By becoming a homebuilder that trades want to work with, they are setting their businesses up for success. This can be achieved by improving communication, streamlining operations, automating repeatable functions and prioritizing training so trade partners have the resources to grow their knowledge of the technology being used and of the business.

Expectations

With predicted growth in 2022, we can expect to see more homebuilders investing in technology to help better manage operations and take back control over supplies, schedules and costs. Although, with the continued increase in demand, homebuilders will need to be aware of interest rates and affordability while taking caution for over-building.

On the other hand, while dealing with the demand, we can expect to see building product manufacturers playing a role in easing some of the challenges homebuilders are facing today, such as creating products that will save on labor to ultimately help manage costs. Building product manufacturers also have an opportunity to assess how diversified their product portfolio is, in relation to disruptions and innovations in the market, and look for ways to improve their portfolio.

To better foster product innovation and keep established relationships with homebuilders, building product manufacturers can also look to increase investment in research and development efforts to enhance their offerings to homebuilders. Additionally, we can expect to see distributors considering whether their most profitable product categories are vulnerable to replacements or substitutes and look to build relationships with innovative suppliers to mitigate the risk of product changes.

Following two years of supply chain issues, labor shortages and the ongoing threats and effects of the pandemic, homebuilders are on the rebound and preparing for the increasing demand to continue. With good reason, many are optimistic about the future of the market, as 60 percent of homebuilders say the residential building market is growing in their state, according to the ECI survey. Although pandemic-driven factors will continue to have an impact in 2022, innovation and technology will allow builders to adapt and be prepared to work around these obstacles. The building and construction industry, at large, has been faced with its fair share of challenges, but has continued to prove its resiliency.