The December 2023 Quarterly Survey of Construction & Development Activity (Construction Quarterly Survey for short) was conducted from December 5 – 12, 2023 and received 31 responses from leading multifamily construction and development firms. Historical data from 2022 surveys for all questions, as well as from this year’s first three quarters’ surveys, are also available in a downloadable spreadsheet.
Average Materials Price Change in 4Q 2023
4%
Exterior Finishes & Roofing
11%
Electrical Components
7%
Appliances
4%
Insulation
3%
Lumber
During the December 2023 Construction Quarterly Survey, 84% of respondents reported experiencing construction delays over the last three months. Although this is the second consecutive quarter of decline in reported delays (falling from 90% in June and 88% in September), these results are consistent with a continued high expectation of construction delays.
Of those experiencing delays, 81% reported permitting delays, up slightly from the 79% seen in September. More pronounced was the 92% who reported delays in starts, up from 79% in September.
Delays in starts were largely attributed to economic uncertainty (83% of respondents, up from 57% last quarter), availability of construction financing (79% of respondents, 78% last quarter) and economic feasibility (71% of respondents, up from 61% last quarter). Permitting, entitlement, and professional services were reported as a cause of delays in starts by half of respondents, down from 74% in September.
Staffing shortages held at 4% (after falling from 10% in June, 7% in March and 18% in December 2022) as a cited cause of delayed starts, a sign that the labor market may be normalizing.
Lastly, the share of respondents attributing delayed starts to materials sourcing and delivery decreased from 30% in September to just 8%, the lowest reading in this category since the survey began in March 2022.
Over the past three months, how long, on average, have municipalities reported it would take before you receive building permits?
| June 2023 | September 2023 | December 2023 | |
|---|---|---|---|
| Up to 2 Months | 3% | 12% | 10% |
| 3-4 Months | 40% | 30% | 17% |
| 5-6 Months | 30% | 12% | 27% |
| 7-8 Months | 10% | 21% | 20% |
| 9+ Months | 10% | 21% | 20% |
| N/A | 7% | 3% | 7% |
Similar to in September (42%), 48% of respondents reported additional project requirements, unrelated to actual construction, being imposed by their jurisdictions over the last three months. Of those reporting additional requirements, energy efficiency requirements and systems were highlighted.
The share of respondents who reported deals repriced up fell to 23% after three prior quarters of little movement—from 48% in September and 47% in both June and March. The largest share of respondents (32%) reported no repricing of deals (up from 15% last quarter), while 26% of respondents reported deals being repriced down (from 33% last quarter).
For all five materials tracked, the rate of price changes remained constant. Respondents reported that prices for insulation, as well as exterior finishes and roofing, increased on average by 4% from last quarter. The highest increases were again for electrical components (an average of 11%) and appliances (an average of 7%). The average respondent reported a 3% decrease in the price of lumber, marking the seventh consecutive quarter of declining lumber prices.
To mitigate price increases and supply shortages, making design changes was the most popular (or tied for most popular) strategy this quarter for exterior finishes and roofing (58% of respondents) as well as electrical components (39% of respondents).
Forty-five percent of respondents reported using alternative brands or suppliers, as well using alternative products/material types, respectively, to mitigate price increases/supply shortages in exterior finishes and roofing. Twenty-nine percent of respondents reported changing their purchasing schedules.
Along with design changes, respondents reported changing their purchasing schedules (39%), using alternative brands or suppliers (35%) and using alternative products/materials (23%) to mitigate price increases/supply shortages for electrical components.
Using alternative brands or suppliers remained the most frequently cited mitigation strategy for appliance shortages or price increases (39% of respondents; down from 58% in September). Regarding insulation and lumber, 35% and 39% of respondents, respectively, reported that mitigation strategies had not been applicable, again indicating a lesser prevalence of shortages and/or unaffordability for these materials.
For four essential materials, greater focus on escalation clauses and acceptance of higher escalations was the least preferred (or tied for least preferred) mitigation strategy for supply shortages or higher prices – 16% of respondents for exterior finishes and roofing, 13% for electrical components, 10% for appliances, and 10% for insulation.
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 | 45% | 35% | 39% | 13% | 10% |
| Used alternative product/material types | 45% | 23% | 10% | 13% | 3% |
| Made design changes | 58% | 39% | 13% | 16% | 10% |
| Changed purchasing schedules including pre-purchasing and/or warehousing products/materials | 29% |
39% | 10% | 10% | 13% |
| Given greater focus on escalation clauses and acceptance of higher escalations | 16% | 13% | 10% | 10% | 6% |
| N/A | 13% | 26% | 16% | 35% | 39% |
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. For many products, a decrease in the use of alternatives was reported. Among those, reporting of alterations for electrical components fell from 61% in September to 16% this quarter. Alterations for appliances fell from 42% in September to 26% this quarter.
For which materials have you made alterations or used alternative products/materials? (multiple selection - totals will not equal 100%)
| June 2023 | September 2023 | December 2023 | |
|---|---|---|---|
| Lumber | 7% | 6% | 6% |
| Plywood | 7% | 9% | 10% |
| Interior wood trim | 10% | 9% | 0% |
| Copper and brass mill shapes | 0% | 15% | 6% |
| Steel mill products | 0% | 15% | 6% |
| Hardware - locks, door/window hardware, cabinet hardware | 27% | 24% | 23% |
| Lighting fixtures | 40% | 48% | 39% |
| Exterior Finishes | 17% | 42% | 29% |
| Electrical components - panels and items with chips | 47% | 61% | 16% |
| Roofing | 10% | 27% | 16% |
| Appliances | 13% | 42% | 26% |
| Insulation | 0% | 9% | 3% |
| Ready-mix concrete | 3% | 6% | 10% |
| Other | 13% | 3% | 13% |
Looking at the construction labor market, this quarter’s results appear largely unchanged from last two quarters’ mixed outlooks, although with more of an indication that conditions are normalizing.
Only 3% of respondents reported construction labor to be less available than three months ago (15% in September and 17% in June), while 19% reported construction labor to be more available (9% in September). That said, the majority of respondents (74%, from 76% last quarter) reported availability to be roughly the same.
After remaining constant at 18% in June and September, the share of respondents who thought labor costs increased less than expected fell to 10% this quarter, while the share who thought labor costs increased more than expected rose from 15% in September to 20% this quarter. The share of respondents who thought labor costs increased as expected fell to 30% (from 42% last quarter). The largest change came in the share of respondents reporting no increase—37%, up from 24% last quarter.
While these results were mixed, the high shares of respondents reporting no change in construction labor availability—and no increase in labor costs—suggest that the labor market was relatively unchanged since September. With a low sample size, it’s difficult to conclude whether the labor market is still easing or beginning to level out.
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%)
| June 2023 | September 2023 | December 2023 | |
|---|---|---|---|
| Sourcing more products/materials domestically | 33% | 38% | 52% |
| Sourcing more products/materials from Canada | 0% | 3% | 0% |
| Sourcing more products/materials locally or from specific domestic regions | 17% | 24% | 10% |
| Using alternative products/materials | 42% | 17% | 34% |
| Other | 8% | 17% | 3% |
