Over the course of the COVID-19 pandemic, the construction industry has been faced with a myriad of challenges, from global supply chain issues causing an increase in material costs to a lack of labor. However, according to a national fourth quarter construction report from construction management company Cumming Group, 2022 will likely see prices begin to decline to normal inflationary rates as issues begin to resolve themselves.
In 2021, the construction industry saw its largest increase ever recorded – an increase of 18.4 percent. In addition, global consumer price inflation picked up from 2.2 percent to 3.7 percent year-over-year. However, Cumming’s Executive Vice President Mark Fergus said this is likely to stabilize throughout 2022, with the report showing consumer price inflation easing to 3.5 percent in 2022 and even lower in 2023, to 2.7 percent.
“We’ve seen some really erratic pricing in the last few quarters of 2021, and this is largely a combination of the engine starting to rev back up again and the lack of supply to the demand,” Fergus said. “Although, we have seen the pricing starting to get back into alignment with where we were pre-pandemic, and I think we’re going to see a bit more of that. Also, there’s an underlying consumer price inflation that is driving certain markets as well and that’s increasing cap rates. It’s still really complex, and I think that’s going to continue for a while.”
The largest price increase over the course of 2021 was observed in the cost of lumber, which jumped nearly 200 percent during the beginning of the year. However, other materials, like plywood, have begun to see slight decreases in pricing. According to the report, plywood prices declined 11.5 percent during August, and are expected to decline even more throughout 2022.
There are many reasons for the price jumps observed in 2021, but the main reason seems to be the lack of available supply to counter the growing demand as pre-pandemic projects come back online. These issues are expected to continue throughout the new year as demand increases and global supply chain issues create backlogs in product availability. However, Cumming anticipates pricing will at least begin to stabilize in early 2022 as current demand for backlogged projects are met.
“It really is the fact that the supply chain has been so disrupted for such an extended period of time and that’s on a global basis. The global supply chain has been impacted, and so that has an availability issue with materials, which have varied with certain projects as some come back online,” Fergus said.
Price increases also saw a jump in 2021 due to the lack of skilled labor available to complete projects. However, the last quarter of the year showed a slight uptick in the number of construction employees across the United States. In the past year, construction unemployment dropped from more than 7.5 percent to six percent in 2021. In 2022, Cumming suggests unemployment in the construction industry is on track to decrease even further to three percent, which would be the first time since 2019.
“There’s been quite a lot of labor that has left during the pandemic and that has been the case with the construction industry. The big challenge of getting skilled labor to carry on the projects that have come back online has put upward pressure on the labor market. You can kind of see this across labor industries, but it’s been particularly hard on the construction industry,” Fergus said.
Overall, Cumming continues to have a positive outlook for the construction industry in 2022. While supply chain issues will continue to put stress on costs, it is unlikely developers will be as active during the new year as they were in 2021. In general, pre-pandemic trends are expected to pick up as projects that were previously stopped by the pandemic are able to be completed. While the Omicron variant does create cause for concern, Cumming anticipates the variant is unlikely to change these predictions as boosters and vaccines keep restrictions at bay.
“I think people are getting more used to living with it. I think the vaccine and boosters have been successful in combating the effects that we had previously, but it’s still going to take time for the supply chain to catch up as well,” Fergus said.
He continued, “…It’s still going to grow and increase in some sectors, but it’s getting more to the underlying inflation; it’s getting a little bit back to normal at this stage. We’re fairly optimistic about 2022 leveling out in terms of the pricing increases.”