As we’ve all learned in the last few months, every industry is suffering from a lack of materials. This has been noted in the tech industry, the automotive industry and of course, in the real estate industry. Many real estate developers have cited a lack of materials as the number one reason for their lack of home and community completions in the last year. Most developers are able to purchase plots of land and build on them within a given year when resources are plentiful, but that has not been the case as of late.
With conditions like this, many real estate developers are wondering if they will be able to complete projects in the coming year. Of the lack of resources, lumber and labor are the two biggest issues developers run into.
The literal building block to most homes is lumber. With a shortage of lumber comes a shortage of building homes and developing communities. Everywhere, from wholesale lumber suppliers to national chains like Home Depot or Lowe’s, are low in stock of their lumber supplies. This is a direct result of the pandemic as many laborers were unable to work in 2020. Since they could not cut down trees in a reasonable amount of time, lumber manufacturing stopped and we are now experiencing a shortage nationwide.
It’s also important to note that, due to the shortage, the average cost of lumber has gone up by more than 300%. For the average home builder, a 300% increase is not feasible and is a bit unrealistic. It’s even more unrealistic for a developer to build several homes as part of a subdivision or community.
The shortage is not just in materials and lumber either, but also in labor. Construction workers and various contractors have also been in high demand lately, which makes them scarce for many jobs. The builder of Starhaven Villas, an upscale retirement community in Utah, recently noted that they have not been able to keep a consistent group of workers on their project. This is also due to the pandemic and so many people being out of work in the last year. Because many people had to go on unemployment or look for new sources of income, construction firms have been unable to retain their former workforce.
This labor shortage should return to normal as most businesses are now open for business and back to operating as they used to. It will take some time, but should not continue to be a stopping point for real estate development.
What Can You Do
If you’re invested in real estate or considering buying a plot of land to build on, you may want to consider other investment options. Until materials are plentiful again, you could end up with a plot of land and nothing to build with. Instead, consider diversifying your investments, consider a fixed monthly income investment, find new investments on Wall Street or look into property management. It’s only a matter of time before real estate development returns to what it was, but we have no idea of knowing just how long that will be.