The December 2022 Quarterly Survey of Construction & Development Activity (Construction Quarterly Survey for short) was conducted from December 5 – 15, 2022 and received 90 responses from leading multifamily construction and development firms. Historical data from 2022 surveys for all questions are also available in a downloadable spreadsheet.
Average Materials Price Change in 4Q 2022
9%
Exterior Finishes & Roofing
13%
Electrical Components
9%
Appliances
9%
Insulation
5%
Lumber
During the December 2022 Construction Quarterly Survey, 84% of respondents reported experiencing construction delays over the last three months. Of those experiencing delays, 84% reported experiencing permitting delays, and 79% reported delays in starts. These numbers are fairly similar to those reported last quarter, indicating that delays are still a common feature of the current development environment.
Respondents experiencing delayed starts were mostly likely to blame permitting, entitlement, and professional services as a cause (46% of respondents, down from 54% in the previous quarter). Economic uncertainty was cited as the second most common cause for delays with 39% of respondents reporting. Although this is down from 41% in the previous quarter, it still indicates that federal monetary policy is influencing the industry at large.
Additionally, the availability of construction financing, or lack thereof, continues to be of primary concern, as 29% of respondents cited this as a contributing factor to delayed starts. Finally, 30% of respondents attributed delays to materials sourcing and delivery.
Over the past three months, how long, on average, have municipalities reported it would take before you receive building permits?
| June 2022 | September 2022 | December 2022 | |
|---|---|---|---|
| Up to 2 Months | 13% | 2% | 12% |
| 3-4 Months | 23% | 29% | 36% |
| 5-6 Months | 37% | 24% | 22% |
| 7-8 Months | 10% | 7% | 7% |
| 9+ Months | 10% | 22% | 12% |
| N/A | 7% | 15% | 11% |
Thirty-eight percent of respondents reported jurisdictions imposing additional project requirements unrelated to actual project construction, down from 39% in the previous quarter. Most notably, respondents mentioned affordability requirements with some also citing public infrastructure improvements and open space preservation.
Overall, 76% of respondents reported experiencing deals repricing over the last three months. Of those respondents, 57% reported that they have experienced deals repricing up, down from 76% of respondents who said the same in September. Of those experiencing repricing, either up or down, respondents reported an 8% average increase over the last three months, down from 9% in the previous quarter.
Respondents reported an average drop in lumber prices for the third straight quarter, down 5% over the last three months. Prices for other essential products continued to see increases. Over the last three months, respondents reported a 9% average increase in the price of exterior finishings and roofing, a 13% increase in electrical components, a 9% increase in appliances, and a 9% increase in insulation, all larger increases than reported during the previous quarter.
A sizeable portion of respondents reported using alternative brands or suppliers to mitigate price increases and supply shortages for exterior finishes and roofing (46%) as well as for appliances (30%). For the second-straight quarter, respondents reported utilizing escalation clauses at lower rates than in the previous quarter for all materials. However, unlike the previous quarter, respondents reported utilizing design changes much less frequently over the last three months for all materials. Additionally, the share of respondents who reported that this question did not apply to them increased significantly for both insulation (an increase from 15% to 32%) and lumber (17% to 30%).
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 | 46% | 27% | 30% | 13% | 6% |
| Used alternative product/material types | 34% | 22% | 12% | 8% | 6% |
| Made design changes | 35% | 19% | 10% | 7% | 6% |
| Changed purchasing schedules including pre-purchasing and/or warehousing products/materials | 33% | 38% | 20% | 13% | 20% |
| Given greater focus on escalation clauses and acceptance of higher escalations | 23% | 20% | 10% | 8% | 10% |
| N/A | 10% | 11% | 20% | 32% | 30% |
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 except for copper and brass mill shapes and exterior finishes.
For which materials have you made alterations or used alternative products/materials? (multiple selection - totals will not equal 100%)
| June 2022 | September 2022 | December 2022 | |
|---|---|---|---|
| Lumber | 20% | 22% | 8% |
| Plywood | 13% | 15% | 8% |
| Interior wood trim | 23% | 17% | 6% |
| Copper and brass mill shapes | 10% | 2% | 3% |
| Steel mill products | 17% | 12% | 10% |
| Hardware - locks, door/window hardware, cabinet hardware | 43% | 32% | 30% |
| Lighting fixtures | 43% | 49% | 34% |
| Exterior Finishes | 43% | 29% | 32% |
| Electrical components - panels and items with chips | 33% | 32% | 31% |
| Roofing | 13% | 34% | 19% |
| Appliances | 40% | 32% | 31% |
| Insulation | 10% | 17% | 10% |
| Ready-mix concrete | 3% | 7% | 6% |
| Other | 7% | 5% | 2% |
Almost two thirds of respondents (64%) reported construction labor availability to be roughly the same as it was three months ago. Only 10% of respondents reported construction labor to be more available compared to three months ago, down from 11% in September, while 21% of respondents reported construction labor to be less available, down from 32%. All of this might suggest that the tight construction labor market is still gradually easing.
However, 36% of respondents reported that construction labor costs increased more than expected during Q4 2022, up from 21% in the previous quarter. Forty-six percent of respondents said that costs increased as expected, while only 5% said costs did not increase, down from 11% in September.
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 2022 | September 2022 | December 2022 | |
|---|---|---|---|
| Sourcing more products/materials domestically | 33% | 33% | 30% |
| Sourcing more products/materials from Canada | 4% | 4% | 0% |
| Sourcing more products/materials locally or from specific domestic regions | 11% | 22% | 20% |
| Using alternative products/materials | 41% | 37% | 40% |
| Other | 11% | 4% | 9% |
Overall, there was no indication that developers are shifting greater attention to any one particular market in search of more projects. 46% of respondents said that the question was not applicable to them, up from 44% last quarter. However, 7% of respondents did say they were seeking out more projects in the Southeast (Atlanta, Charlotte, Orlando, etc.) and Southwest (Phoenix, etc.). Respondents commonly mentioned cities such as Charlotte, Raleigh, Tampa, Nashville, Phoenix, and Las Vegas as places of increased interest.
When asked about regions where they are no longer seeking projects, 51% of respondents said that the question was not applicable to them. A small portion of respondents (6%) said they were no longer seeking out projects in the Southwest Coast (LA, San Diego, etc.) and a select few (4%) said the same about the Northwest Coast (San Francisco, Seattle, etc.).
About the NMHC Quarterly Survey of Apartment Construction & Development Activity
Given the invaluable support the NMHC COVID Construction Survey provided for our work on Capitol Hill as well as for our members throughout the pandemic, NMHC launched this new iteration of the survey to be more ongoing and branch beyond the obstacles of the pandemic. While the pandemic’s effect on health and safety has become better controlled, its effects on the construction industry persist with supply chain obstacles and ongoing delays related to issues with staffing to permitting and entitlement. Issues beginning to draw concern pre-pandemic in the industry are now continuous impediments to building that threaten to worsen the affordability crisis.
