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The American construction industry is not prepared for the upcoming construction boom that will occur in the next thirty years. Consider this: Based on 2020 US Census statistics, the nation has continued a 40-year trend of tens of millions of our citizens moving from the North and Northeast to the South, Midwest, and Southwest.
As a result of the Covid-19 pandemic, millions more have relocated to be closer to friends and family, in search of more affordable locations and accommodation with more living space, as well as warmer climates, as many can now work from anywhere in the country. The net result of these geographic movements was an increase in the need for more homes, schools and healthcare facilities, followed by retail which resulted in a need for more warehouses and industrial parks.
This massive change in population must also be seen in the context of our aging, built environment. Studies show that by 2050, commercial building space is expected to reach 124.3 billion square feet, an increase of 33% from 2020, with educational, retail, office and warehouse buildings accounting for 60% of the total commercial area and 50% of all buildings. Meanwhile, 42% of our country’s 617,000 bridges (46,154 bridges) are at least 50 years old and in need of major repair or replacement.
There is and will be, over the next 30 years, a tremendous need to repair and/or replace more than half of America’s existing building stock. These endeavors will reflect our population growth in existing urban areas as well as in developing areas of the nation as a result of our national migration trends of the past decades.
This demand for construction work will also be boosted by an influx of federal infrastructure funding, with an initial $1.2 trillion in funding approved by the recent Biden administration. This new wave of investment will help repair and replace our power grid, our roads and highways and supercharger support for our growing electric car population, as well as $1 billion to renovate our nation’s failing airports.
In the new, growing areas of our nation, we will see the construction of massive new housing, office towers, and education and health\research facilities, as well as the repositioning of old shopping centers and the replacement of many of our nation’s older educational and tourism structures.
Residential patterns of migration
In line with the previous decade, between 2018 and 2019, migration to the South and Southwest continued at an accelerated pace. The South had seven major cities in the top 15 with the biggest population change, including Phoenix, Charlotte, North Korea and in Texas: San Antonio, Austin and Fort Worth. This is in line with the period from 2010 to 2019.
Yet the global supply chain, intertwined with construction and infrastructure markets, remains in a state of disruption and reinvention. If it wasn’t before, it has become painfully clear that we need to systematically rethink our supply chain so that we are not caught flat-footed again and are better prepared to deal with the demands of the decades ahead – rather than continuing to maintain an ill-conceived system from past decades.
Critical Elements
Given that so much of the disruption to the global supply chain has been caused by the effects of the pandemic – with no apparent action plan to address it – there is little chance that we will experience any significant near-term recovery. However, even as we move simply to function, in the long term, the AEC industry and its supply chain require a multi-level transformation to meet the needs and challenges of the decades ahead:
· Cost of materials: Total 12-month construction in the U.S. rose 11.2% to $1.7 trillion through February 2022, according to the U.S. Census Bureau, with residential real estate contributing about half of the total. While residential construction rose 16.5% year-on-year, commercial construction grew 18%, recovering from a low base in 2020.
Meanwhile, new building prices have skyrocketed. According to the National Association of Home Builders, annual lumber prices nearly tripled in the first quarter of 2022, driving the price of the average new single-family home up more than $18,600. This increase in the price of lumber also added nearly $7,300 to the market value of the average new multifamily building, meaning households are paying $67 more per month to rent a new apartment.
At its peak, framed lumber prices were adding $30,000 to the cost of a new single-family home and $10,000 to a multi-family home, due to inventory shortages caused by the pandemic. Lumberjacks cut production in anticipation of slower demand in April 2020. However, while demand held up better than forecast, mills did not immediately ramp up production, leading to immediate pricing challenges.
Aluminum and copper prices are currently stable, but at historically high levels. As the largest producer of crude aluminum, China has been curbing its production since 2020 to reduce greenhouse gas emissions, which has resulted in lower supply amid rising demand and thus higher prices.
Adding in costs, cement and concrete products have already seen price growth of 3% from Q4 2021 to Q1 2022, with prices forecast to rise another 7.7% by the end of this year. The good news is that these rising product and material prices are likely to stabilize over the next year.
· Domestic production: Currently, about 30% of construction materials come from abroad. We must reduce that number significantly to minimize reliance on what have become unreliable sources. However, although many manufacturers are beginning to bring their manufacturing facilities back to the US, it will likely be three to five years before we experience the significant, collective impact of this recovery in domestic production.
· Construction technology: Technology must be introduced that enables reliable tracking of all construction products — drywall, door handles, window panes, etc. — throughout their life cycle, from the moment each is procured from the manufacturer, shipped from the original location, and delivered to the project. place for installation. Today, this process is fragmented and cannot be reliably tracked, so we are unable to consistently identify specific disruptions in the supply chain and how best to address those issues. The adoption and implementation of new construction technologies promises to lead to major changes in the way projects are planned, executed and completed.
· Trucker’s Riddle: Labor shortages in the construction industry are exacerbated by the competitive wages offered in other industries. Walmart is reportedly offering up to $110.00 a year for full-time drivers and will continue to become more competitive as major retailers prepare for back-to-school and holiday shopping.
The shortage of truck drivers cannot be solved by higher wages alone. Truck drivers face a hectic lifestyle — traveling long distances with long hours, truck stop meals, breaks, etc. — which motivates many workers to find work in other industries. Ultimately, driverless trucks and/or breaking long routes into shorter ones could become the industry’s lifeline.
America’s construction and infrastructure sectors face an unprecedented challenge — and a once-in-a-century opportunity. As painful as the pandemic was, the effects should have shattered any illusions that our system, as currently constituted, is even close to being sufficient to meet these goals for decades to come.
We have the collective knowledge and know-how to make changes that will materially improve the nation and the way it functions. The industry must now show both the will and the commitment to make them a reality.
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