Outlook for the Residential Construction Sector
On the heels of the pandemic, residential construction activity spiked in mid-2020 and throughout 2021 in a quest by consumers for more living and outdoor space. However, at the same time, there have been challenges in the residential construction market to meet consumer demand – from the rising cost of building materials to a higher inflation rate and supply-chain issues – making it more expensive to build and purchase homes and adding to project completion delays including having to make changes in construction insurance policy terms like builder’s risk. Add to this an emerging construction labor shortage, which has further complicated the industry’s ability to meet consumer demand.
Despite these issues, residential starts, including single-family construction, multifamily construction, and home improvements, are expected to continue in an upward trend. ConstructConnect’s Construction Starts Forecast estimates a 16.7% increase in total residential work for 2021, with an additional 10.5% boost in 2022. New construction starts are up 19% in 2021 for multifamily housing, with another 5% increase forecast for 2022. Meanwhile, the National Association of Home Builders (NAHB) estimates total housing starts rose by 13% in 2021, with single-family units up 10.7% and multifamily housing up 19.3%. For 2022, NAHB forecasts a slight 1.7% drop in overall starts, spurred by a 6.2% decline in multifamily housing. Both forecasts indicate a slower growth for single-family starts.
“Even a flat level of single-family starts for 2022 would represent more than a 20% gain over 2019, pre-COVID construction levels,” said Robert Dietz, NAHB chief economist. “Affordability will be a key emerging constraint in 2022 for home buyers, given the substantial and unsustainable run-up in home prices during 2020 and 2021.”
What About the Commercial Construction Sector?
According to the Dodge Construction Network, warehouse construction starts were the key driver in the commercial sector. Starts will increase by 36% in 2021, with an added 13% boost expected in 2022. The popularity of online shopping/e-commerce is behind the spike in warehouse construction builds.
Data centers are another big area of growth for the commercial construction sector.
According to Dodge, office construction took a hit in the wake of the pandemic and is expected to rise by 4% in 2021 and 10% in 2022. Other forecasts, however, are less optimistic about office construction and expect flat growth or a decline. Having said this, many existing buildings will require significant retrofitting to respond to emerging client and employee concerns in a post-pandemic environment. The pandemic has also spurred devising new business models and design opportunities.
Overall, construction starts are expected to rise in 2022, more so in some sectors than others, even in the face of continued challenges from higher building material costs, supply-chain delays, more extended project time frames, and a labor shortage. This will continue to impact a contractor’s construction insurance, including extending the policy period in a builder’s risk policy.