AUSTIN (KXAN) — Rising housing prices and rents aren’t going away, and one thing that could help – new construction – will face some of the same challenges this year that they did last year.
According to the Associated General Contractors of America’s 2023 outlook, companies are bracing for more trouble hiring workers to keep up with projects.
The outlook report’s survey respondents also said they anticipate more supply chain issues, which have already inflated the costs of construction materials and delayed project deliveries.
Chuck Lipscomb, Austin office business unit leader for JE Dunn, said until recently, the average increase for commercial construction costs was about four or five percent annually. In the last couple years, that’s spiked to 12 or 13%– or even higher, in some cases.
That includes construction costs for multifamily residential projects the company works on, like apartment complexes, high rise multifamily towers and condo towers.
“Complicating things, these supply chain challenges have been erratic and unpredictable. One week one material is in short supply, while the next week, it is a different product. This makes it hard for contractors to make reliable cost estimates and anticipate production schedules,” said Stephen Sandherr, chief executive officer of the Associated General Contractors of America.
Contractors cited those costs and rising costs of financing, insurance, and interest rates for postponed projects in 2022, many of which have not yet been rescheduled.
That’s slowed down the number of projects in the pipeline, including for multifamily housing.
“Developers are having to, in some cases, stop and rethink the timing of their projects,” said Lipscomb.
AGC said the costs are impacting renters.
“Developers are looking to cover the cost of financing and construction increases with higher rents,” said Ken Simonson, AGC’s chief economist.
There is some good news, though.
Lipscomb said he expects the cost of construction to stabilize this year.
He also said the slowdown in construction activity could end up being good news for some.
“When you have projects that have been delayed, or put on hold indefinitely, the construction activity obviously slows down,” he explained. “That could lead to costs coming down, because there’s less opportunity out there in the market.”
Lipscomb also hopes there’s some relief from Austin’s affordable housing bond funding and other deals with the city.
“Capital markets are still volatile and debt is harder to come by to finance projects. So, if there are means and methods for the public sector to contribute. I think that’s that’s a good thing,” he said.
AGC said contractors nationwide also have high hopes for public funding this year.
The Association said many of its survey respondents are hoping to see the impact of new federal moves in infrastructure and construction, including funding from the Bipartisan Infrastructure Law, the CHIPS Act and the Inflation Reduction Act.
“In addition, many state and local governments have boosted their construction budgets as
they have benefitted from a strong economy and a COVID-related influx of federal funds,” the report states.