The September 2023 Quarterly Survey of Construction & Development Activity (Construction Quarterly Survey for short) was conducted from September 5 – 18, 2023 and received 33 responses from leading multifamily construction and development firms. Historical data from 2022 surveys for all questions, as well as from this year’s first two quarters’ surveys, are also available in a downloadable spreadsheet.
Average Materials Price Change in 3Q 2023
4%
Exterior Finishes & Roofing
11%
Electrical Components
7%
Appliances
4%
Insulation
3%
Lumber
During the September 2023 Construction Quarterly Survey, 88% of respondents reported experiencing construction delays over the last three months. A similar share as last quarter (90%), this reaffirms the high expectation of construction delays despite the three consecutive quarters of decline in reported delays between June 2022 and March 2023.
Of those experiencing delays, 79% of respondents reported experiencing permitting delays, up from 70% in June, while reported delays in starts remained relatively constant at 79%.
Respondents experiencing delayed starts cited the availability of construction financing (78% of respondents, up from 62% last quarter) and permitting, entitlement, and professional services (74% of respondents, up from 57% last quarter) as chief causes. Also cited often was project infeasibility (61%) and economic uncertainty (57%), all perhaps an unsurprising reflection of higher interest rates coupled with still elevated inflation.
Staffing shortages fell to 4% (from 10% in June, 7% in March and 18% in December) as a cited cause of delayed starts, possibly an indication of a still easing labor market.
Lastly, the share of respondents attributing delayed starts to materials sourcing and delivery increased from just 10% in June to 30% this round, the largest increase of all categories.
Over the past three months, how long, on average, have municipalities reported it would take before you receive building permits?
| March 2023 | June 2023 | September 2023 | |
|---|---|---|---|
| Up to 2 Months | 12% | 3% | 12% |
| 3-4 Months | 33% | 40% | 30% |
| 5-6 Months | 21% | 30% | 12% |
| 7-8 Months | 7% | 10% | 21% |
| 9+ Months | 19% | 10% | 21% |
| N/A | 9% | 7% | 3% |
Forty-two percent of respondents reported additional project requirements, unrelated to actual construction, being imposed by their jurisdictions, down from 52% in the previous quarter. Of those who reported additional requirements, public/offsite work and affordability requirements were highlighted.
The share of respondents seeing deals repriced up (48%) has held relatively constant for three quarters running – from 47% in June and March, respectively. Conversely, downward repricing had a reported increase, up to 33% of respondents from 20% last quarter (21% in March). Additionally, 15% of respondents reported no repricing on deals, down from 30% last quarter.
Those who saw deals repriced, in either direction, reported on average a 10% increase, from 9% in June, 3% in March and 9% in September 2022.
Respondents reported that prices for insulation, as well as exterior finishes and roofing, increased on average by 4% from last quarter – both reported at 3% average increases in June. Other essential products saw more pronounced rates of change: respondents reported prices for electrical components increased an average of 11% (up from 7% last quarter) and appliances an average of 7% (up from 2%). The price of lumber fell for the sixth consecutive quarter – by an average of 3% - albeit at a slower rate than in the preceding periods.
To mitigate price increases and supply shortages for exterior finishes and roofing, design changes became the most preferred strategy this quarter (67% of respondents), followed by use of alternative brands or suppliers (52%) and use of alternative products/materials (45%).
Slightly over half of respondents (55%) reported changing their purchasing schedules to mitigate price increases/supply shortages for electrical components, while slightly under half (45%) reported making design changes. Thirty-nine percent of respondents used alternative brands/suppliers and 36% used alternative products/material types.
Using alternative brands or suppliers remained the most frequently cited mitigation strategy for appliance shortages or price increases (58% of respondents; up from 43% in June). Regarding insulation and lumber, 42% and 45% 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 three essential materials, greater focus on escalation clauses and acceptance of higher escalations was the least preferred mitigation strategy for supply shortages or higher prices – 27% of respondents for electrical components, 9% for appliances, and 3% 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 | 52% | 39% | 58% | 18% | 3% |
| Used alternative product/material types | 45% | 36% | 18% | 21% | 0% |
| Made design changes | 67% | 45% | 12% | 15% | 0% |
| Changed purchasing schedules including pre-purchasing and/or warehousing products/materials | 30% | 55% | 27% | 15% | 24% |
| Given greater focus on escalation clauses and acceptance of higher escalations | 39% | 27% | 9% | 3% | 12% |
| N/A | 15% |
6% | 27% | 42% | 45% |
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, respondents reported increased use of alterations. Most pronounced, reporting of alterations for exterior finishes increased from 17% in June to 42% this quarter. Similarly, reported alterations for appliances increased from 13% to 42%.
For which materials have you made alterations or used alternative products/materials? (multiple selection - totals will not equal 100%)
| March 2023 | June 2023 | September 2023 | |
|---|---|---|---|
| Lumber | 12% | 7% | 6% |
| Plywood | 9% | 7% | 9% |
| Interior wood trim | 14% | 10% | 9% |
| Copper and brass mill shapes | 9% | 0% | 15% |
| Steel mill products | 14% | 0% | 15% |
| Hardware - locks, door/window hardware, cabinet hardware | 28% | 27% | 24% |
| Lighting fixtures | 53% | 40% | 48% |
| Exterior Finishes | 30% | 17% | 42% |
| Electrical components - panels and items with chips | 51% | 47% | 61% |
| Roofing | 23% | 10% | 27% |
| Appliances | 30% | 13% | 42% |
| Insulation | 12% | 0% | 9% |
| Ready-mix concrete | 5% | 3% | 6% |
| Other | 5% | 13% | 3% |
Looking at the construction labor market, this quarter’s results appear largely unchanged from last quarter’s mixed outlook.
Fifteen percent of respondents reported construction labor to be less available than three months ago (17% in June), while 9% reported construction labor to be more available (10% in June). Again, the majority of respondents (76%; up from 66% last quarter) reported availability to be roughly the same.
The share of respondents who thought labor costs increased more than expected fell to 15% (from 18% in June), although remained higher than the 12% seen in March, while the share who thought labor costs had increased less than expected held at 18%. Twenty-four percent of respondents reported no increase in labor costs (25% in June and 24% in March). The largest change came in the share who thought labor costs increased as expected – 42%, up from 32%, of respondents.
Results regarding the labor market again lead to mixed conclusions. 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%)
| March 2023 | June 2023 | September 2023 | |
|---|---|---|---|
| Sourcing more products/materials domestically | 39% | 33% | 38% |
| Sourcing more products/materials from Canada | 3% | 0% | 3% |
| Sourcing more products/materials locally or from specific domestic regions | 3% | 17% | 24% |
| Using alternative products/materials | 42% | 42% | 17% |
| Other | 14% | 8% | 17% |
