The June 2023 Quarterly Survey of Construction & Development Activity (Construction Quarterly Survey for short) was conducted from June 7 – 23, 2023 and received 30 responses from leading multifamily construction and development firms. Historical data from 2022 surveys for all questions, as well as from last quarter’s survey, are also available in a downloadable spreadsheet.
Average Materials Price Change in 2Q 2023
3%
Exterior Finishes & Roofing
7%
Electrical Components
2%
Appliances
3%
Insulation
4%
Lumber
During the June 2023 Construction Quarterly Survey, 90% of respondents reported experiencing construction delays over the last three months. Despite the preceding quarters downward trend (79% in March, down from 84% in December and 90% in September), delays are still an expected feature of the current development environment.
Of those experiencing delays, 70% of respondents reported experiencing permitting delays, and 78% reported delays in starts.
Respondents experiencing delayed starts were again most likely to cite project infeasibility (62% of respondents, up from 49% last quarter), along with access to construction financing (62% of respondents, up from 40% last quarter), as a cause. Permitting, entitlement, and professional services (57%) as well as economic uncertainty (52%), both elevated from last quarter, followed as likely to be cited causes.
Material sourcing and delivery was the only cause of delayed starts that saw a drop in responses, down to 10% of respondents from 21% in March, 30% in December and 53% in September.
Lastly, 10% of respondents cited staffing shortages, ticking up slightly from last quarter (7% of respondents in March, 18% in December and 31% in September) but still an indication of an easing labor market compared to last year.
Over the past three months, how long, on average, have municipalities reported it would take before you receive building permits?
| December 2022 | March 2023 | June 2023 | |
|---|---|---|---|
| Up to 2 Months | 12% | 12% | 3% |
| 3-4 Months | 36% | 33% | 40% |
| 5-6 Months | 22% | 21% | 30% |
| 7-8 Months | 7% | 7% | 10% |
| 9+ Months | 12% | 19% | 10% |
| N/A | 11% | 9% | 7% |
Fifty-two percent of respondents reported additional project requirements, unrelated to actual construction, being imposed by their jurisdictions, up from 35% in the previous quarter. Of this increase, respondents highlighted offsite improvements such as road work, park fees and/or utility extensions.
Again this quarter, nearly half of respondents (47%) saw deals repriced up, down from 58% in December and 83% in June of last year. Conversely, 20% of respondents reported deals repricing down, holding relative constant from the last two quarters (21% of respondents in March and 18% in December) and up from 13% in June of last year.
Those who experienced repricing, in either direction, reported on average a 9% increase, up from 3% in March, 8% in December and 11% in June 2022.
Respondents reported an average drop in lumber for the fifth straight quarter, down 4% over the last three months. While reported prices for insulation increased on average by 3%, the same rate as in March, prices for other essential products increased at a slower rate compared to the prior three months – respondents reported a 2% average increase in appliances (down from 7% last quarter), a 7% increase in electrical components (9% last quarter) and a 3% increase in exterior finishings and roofing (4% last quarter).
To mitigate price increases and supply shortages for exterior finishes and roofing, more than half of respondents (53%) reported using alternative brands or suppliers for their projects, 50% used alternative product/material types and/or made design changes, and 47% changed their purchasing schedules.
Similar strategies were employed by respondents to mitigate price increases and supply shortages for electrical components – 53% made design changes, 47% used alternative brands or suppliers, 43% changed their purchasing schedules, and 33% used alternative product/material types.
Using alternative brands or suppliers remained the favored mitigation strategy for appliance shortages or price increases (43% of respondents). As for insulation and lumber, a plurality reported that mitigation strategies for price increases/supply shortages were not applicable (47% and 67% of respondents, respectively), indicating a lesser prevalence of shortages and/or unaffordability for these materials.
Focusing on escalation clauses and acceptance of higher escalations was the least popular mitigation strategy – 20% of respondents reported using this strategy in response to exterior finishes and roofing shortages, 20% for electrical components, 3% for appliances, 7% for insulation and 4% for lumber.
Which of these approaches have you adopted to mitigate the price increases/supply shortages for each material? (multiple selection - totals will not equal 100%)
| Exterior Finishes and Roofing | Electrical components | Appliances | Insulation | Lumber | |
|---|---|---|---|---|---|
| Used alternative brands or suppliers | 53% | 47% | 43% | 20% | 7% |
| Used alternative product/material types | 50% | 33% | 10% | 13% | 0% |
| Made design changes | 50% | 53% | 3% | 10% | 0% |
| Changed purchasing schedules including pre-purchasing and/or warehousing products/materials | 47% | 43% | 17% | 13% | 7% |
| Given greater focus on escalation clauses and acceptance of higher escalations | 20% | 20% | 3% | 7% | 4% |
| N/A | 13% |
10% | 33% | 47% | 67% |
To gain further understanding of other materials of issue, respondents were asked about a more extensive list of common products and materials used in development, seen in the table below. As supply chains recover, respondents reported using fewer alterations for all products compared to last quarter.
For which materials have you made alterations or used alternative products/materials? (multiple selection - totals will not equal 100%)
| December 2022 | March 2023 | June 2023 | |
|---|---|---|---|
| Lumber | 8% | 12% | 7% |
| Plywood | 8% | 9% | 7% |
| Interior wood trim | 6% | 14% | 10% |
| Copper and brass mill shapes | 3% | 9% | 0% |
| Steel mill products | 10% | 14% | 0% |
| Hardware - locks, door/window hardware, cabinet hardware | 30% | 28% | 27% |
| Lighting fixtures | 34% | 53% | 40% |
| Exterior Finishes | 32% | 30% | 17% |
| Electrical components - panels and items with chips | 31% | 51% | 47% |
| Roofing | 19% | 23% | 10% |
| Appliances | 31% | 30% | 13% |
| Insulation | 10% | 12% | 0% |
| Ready-mix concrete | 6% | 5% | 3% |
| Other | 2% | 5% | 13% |
After last quarter’s easing in the construction labor market, this quarter’s results were more mixed.
Seventeen percent of respondents reported construction labor to be less available than three months ago, up from 10% in March, while only 10% of respondents reported construction labor to be more available, down from 19%. A majority of respondents (66%) reported there to be no change in availability.
On the other hand, there was an increase in both the share of respondents who thought labor costs had increased more than expected (12% to 18% of respondents) and the share who thought labor costs had increased less than expected (7% to 18%). A quarter of respondents reported labor costs did not increase over the last three months, holding roughly constant from last quarter (24%). Roughly a third of respondents (32%) reported labor costs increasing as expected over the three-month period.
Given the smaller sample size of this survey round (30 respondents), we cannot say with certainty whether these mixed results mark a change in last quarter’s softening in the labor market.
Given current challenges in the importation and transportation of goods, what are you doing to mitigate the negative impacts of these conditions? (multiple selection - totals will not equal 100%)
| December 2022 | March 2023 | June 2023 | |
|---|---|---|---|
| Sourcing more products/materials domestically | 30% | 39% | 33% |
| Sourcing more products/materials from Canada | 0% | 3% | 0% |
| Sourcing more products/materials locally or from specific domestic regions | 20% | 3% | 17% |
| Using alternative products/materials | 40% | 42% | 42% |
| Other | 9% | 14% | 8% |
