Another eventful year is in the books for the residential construction industry. Lumber prices finally stopped their tumultuous rise just in time for historic inflation rates to hit a 40-year high, a new coronavirus variant is stirring a string of new safety and testing procedures across the country, and supply chain issues remain a problem around the world. In many ways 2022 looks to be like 2021 with industry wide construction challenges, new COVID-19 measures, and persistent demand. This uncertainty, however, did not impact contractor’s residential construction forecast for 2022.
To help gauge contractor’s business expectations for 2022 we asked more than 80 residential construction leaders a series of questions. These included their thoughts about their anticipated project volume, business operations, largest threats to the industry, and what they are most excited to see happen to their business next year. Comparing this year’s data against a similar expectations survey run last year, contractors’ residential construction forecast for 2022 differs from their 2021 forecast.
About the survey
We conducted this survey from December 13, 2021 to December 21, 2021 and received more than 80 responses. This survey was completed by CoConstruct’s construction project management software users in the US.
The big takeaway?
The 2022 residential construction forecast shows that contractors are poised for another year of growth but growth expectations are less than they were last year. After two years of working in the “new normal” contractors are also not expecting as many operational changes as previous years and they believe supply chain issues will be the biggest factor affecting the industry in 2022.
Fill in the blank: I expect my business will do ___ compared to last year.
According to CoConstruct contractors, there is more in store for the residential construction forecast in 2022. Most respondents said they anticipate their business doing more projects in 2022 than 2021. 38.8% of respondents said that they anticipate doing about the same number of projects in 2022 and only 5.9% of respondents said they anticipate doing fewer projects in the upcoming year. Notably, contractors in the South were more likely to say they are anticipating completing the same number of projects as last year. These growth expectations fit with the latest NAHB/Wells Fargo Housing Market Index (HMI), a monthly survey designed to take the pulse of the single-family housing market, which had its highest rating in December 2021 since the same time last year.
Year-over-year this expected growth is down, however, for contractors. Last year 70% of respondents surveyed said they expected their business to do more projects compared to only 55.3% this year. But that drop from 2021 to 2022 doesn’t necessarily mean a less optimistic forecast because a number of respondents noted later in the survey that they are not necessarily planning to do more projects but instead make more on the projects they complete by increasing margins. Similarly, the number of respondents year-over-year who are planning to do fewer projects is flat, suggesting that uncertainty in the market is for the moment not causing contractors to plan for less work. Overall, the forecast is calling for growth, but contractors aren’t anticipating the same demand windfall they felt going into 2021.
How do you think your business will operate in 2022 compared to previous years?
Residential construction businesses have transformed how they operate over the last 18 months due to new OHSA safety guidelines, virtual project collaboration, and more. Heading into 2022, however, contractors expect that most operational changes are in the rear-view mirror.
Last year 35% of respondents said they expected their business to operate very differently than the past two years. This year that number dropped to 31.7% and instead the most popular response was some changes but mostly the same as 2021 for 43.5% of respondents. Other contractors are forecasting no changes from previous years with 8.2% of respondents and 9.4% of respondents saying their business will operate the same as it did in 2021 and 2020, respectively.
After a year and a half of operating in this “new normal” most businesses have adapted their processes and are only anticipating minor deviations to their plans compared to contractors at the start of 2021 who were expecting big changes in the upcoming year. Some contractors are hoping these changes won’t be additional safety or supply chain constraints but a return to pre-pandemic business operations.
What is the biggest factor that will impact the residential construction industry next year?
As noted, residential construction businesses are facing a lot of headwinds in 2022. When asked to identify the one issue most impacting the industry, 36.5% of respondents said supply chain issues. The next most pressing problem according to contractors is the labor market, followed by material costs, and then inflation. Notably, contractors in the Midwest were more likely to say the labor market is the biggest factor over supply chain issues. Unfortunately, most of these issues will persist throughout the year as experts predict that supply chain issues won’t get better until at least the second half of 2022.
While many of these issues are interconnected, contractors highlighting supply chain issues as their most pressing issue shows just how visible it is to day-to-day operations. As one builder told us, “Major barriers will be the supply chain issues and the materials costs increases. We feel like we can navigate the labor market but keeping projects profitable with extended lead times on windows, doors, and other miscellaneous items plus wildly varying materials costs will be tough.”
What are you most excited to see happen to your business in 2022?
Even with major economic factors affecting the residential construction forecast, contractors have a lot of optimism and big plans for 2022. The biggest trends businesses are excited to see happen in 2022 are business growth, refining business systems or processes, and seeing a return to pre-pandemic normalcy. Over a third of respondents told us they were most excited about growing their business in 2022. For some companies this growth means looking to expand their team but for others it means increasing their project volume.
Other contractors noted that their residential construction forecast for 2022 doesn’t entail more projects but better profit margins. One builder told us they are most excited about, “Focusing on smaller remodel projects with higher margins. Insulated better from the volatility of the market.” This idea of doing more with less was also shared by respondents who want to focus on refining their systems or processes in the new year.
Like many of us, several respondents noted that they are most excited to hopefully get back to business as usual especially with regard to factors impacting the industry. One builder summarized this by saying, “Supply chain pricing and labor market stabilization would make me the happiest."
Looking to stay on top of the latest residential construction industry news? See our industry insights blog post for trends and analysis of the latest residential construction data.