The September 2022 Quarterly Survey of Construction & Development Activity (Construction Quarterly Survey for short) was conducted from September 6 – 21, 2022 and received 41 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 3Q 2022
8%
Exterior Finishes & Roofing
12%
Electrical Components
6%
Appliances
6%
Insulation
2%
Lumber
During the September 2022 Construction Quarterly Survey, 90% of respondents reported experiencing delays in construction. Over three-quarters of those experiencing overall delays (78%) reported delays in permitting, while 86% reported delays in starts.
Respondents experiencing delayed starts were most likely to blame permitting, entitlement, and professional services as a cause (69% of those with delayed starts, compared to 85% last quarter), followed by materials sourcing (53% of respondents) and delivery and project infeasibility (53%).
Forty-one percent of respondents cited economic uncertainty as a contributing factor to their delayed starts, more than double the percentage of respondents in both March and June. Finally, as the Fed continues to target inflation through rate hikes, an increasing share of respondents are reporting delayed starts due to a lack of available construction financing – from 7% of respondents with delayed starts in March, to 15% in June and 31% this round.
Over the past three months, how long, on average, have municipalities reported it would take before you receive building permits?
| March 2022 | June 2022 | September 2022 | |
|---|---|---|---|
| Up to 2 Months | 13% | 13% | 2% |
| 3-4 Months | 32% | 23% | 29% |
| 5-6 Months | 26% | 37% | 24% |
| 7-8 Months | 5% | 10% | 7% |
| 9+ Months | 13% | 10% | 22% |
| N/A | 11% | 7% | 15% |
Thirty-nine percent of respondents reported jurisdictions imposing additional project requirements unrelated to actual project construction, down from 43% of respondents last quarter. Respondents frequently mentioned offsite improvements, impact fees, and affordability measures as additional requirements they were facing.
Seventy-six percent of respondents said that they have experienced deals repriced up over the last three months. Those experiencing repricing, either up or down, reported an average increase of 9% over the same three-month period, down from the 7% increase reported last quarter.
Respondents reported an average drop in lumber prices for the second straight quarter, down 2% over the last three months. However, these two consecutive quarters of decline still come on the heels of a 45% reported average increase in 1Q 2022. Prices for other essential products increased but at the same or lower rates than in the previous quarter. Over the last three months, respondents reported an 8% average increase in the price of exterior finishings and roofing, a 12% increase in electrical components, a 6% increase in appliances, and a 6% increase in insulation.
A large share of respondents reported needing to change schedules to mitigate price increases and supply shortages for exterior finishes and roofing (46%) as well as for electrical components (51%). In general, respondents reported utilizing escalation clauses at lower rates than in the previous quarter for all materials. Additionally, unlike last quarter, a smaller proportion of respondents indicated that this question was not applicable to them for insulation (15%) and lumber (17%), potentially indicating that more mitigation strategies are being employed for these materials, despite them having fewer substitutes.
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 | 39% | 37% | 41% | 29% | 20% |
| Used alternative product/material types | 39% | 29% | 20% | 24% | 20% |
| Made design changes | 34% | 32% | 12% | 17% | 15% |
| Changed purchasing schedules including pre-purchasing and/or warehousing products/materials | 46% | 51% | 34% | 34% | 41% |
| Given greater focus on escalation clauses and acceptance of higher escalations | 37% | 37% | 24% | 34% | 27% |
| N/A | 10% | 7% | 17% | 15% | 17% |
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. Products such as interior wood trim, copper and brass mill shapes, steel mill products and appliances appear to have become less of a concern for respondents compared to March and June 2022. In contrast, nearly half (49%) of respondents this round reported making alterations or using alternative products for lighting fixtures.
For which materials have you made alterations or used alternative products/materials? (multiple selection - totals will not equal 100%)
| March 2022 | June 2022 | September 2022 | |
|---|---|---|---|
| Lumber | 37% | 20% | 22% |
| Plywood | 34% | 13% | 15% |
| Interior wood trim | 37% | 23% | 17% |
| Copper and brass mill shapes | 13% | 10% | 2% |
| Steel mill products | 13% | 17% | 12% |
| Hardware - locks, door/window hardware, cabinet hardware | 26% | 43% | 32% |
| Lighting fixtures | 47% | 43% | 49% |
| Exterior Finishes | 42% | 43% | 29% |
| Electrical components - panels and items with chips | 21% | 33% | 32% |
| Roofing | 37% | 13% | 34% |
| Appliances | 45% | 40% | 32% |
| Insulation | 26% | 10% | 17% |
| Ready-mix concrete | 5% | 3% | 7% |
| Other | 5% | 7% | 5% |
Less than a third (32%) of respondents reported construction labor to be less available compared to three months ago – down from 40% in June and 63% in March – while the share of respondents reporting a greater availability of labor has increased from 0% in March to 7% in June and 11% this round. This suggests that this ultra-tight market for construction labor might finally be starting to moderate. The remaining 57% of respondents, meanwhile, believed that construction labor was roughly the same as three months ago.
Similarly, just 21% of respondents said that labor costs had increased at a rate greater than what they expected, down from 40% of respondents last quarter and 55% in March. About two-thirds of respondents (68%) said that labor costs had increased as expected over the last three months, while 11% thought that labors costs did not increase at all.
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 2022 | June 2022 | September 2022 | |
|---|---|---|---|
| Sourcing more products/materials domestically | 34% | 33% | 33% |
| Sourcing more products/materials from Canada | 3% | 4% | 4% |
| Sourcing more products/materials locally or from specific domestic regions | 17% | 11% | 22% |
| Using alternative products/materials | 37% | 41% | 37% |
| Other | 9% | 11% | 4% |
Overall, there was no indication that developers are shifting greater attention to any one particular market in search of more projects. Forty-four percent of respondents said that the question was not applicable to them. However, a handful (10%) indicated that they were turning their attention to Texas (e.g., Dallas, Houston, Austin) due to fewer issues in the region related to sourcing labor and permitting, showing a second quarter of increased interest in the fast-growing state.
A small number of respondents (7%) said that they were no longer seeking out projects in the N. West Coast (e.g., San Francisco and Seattle) due to greater obstacles in those markets related to permitting and labor availability, while 5% said the same about the S. West Coast (e.g., San Diego and Los Angeles). Overall, however, 51% of respondents said that the question was not applicable to them.
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.
