New Construction Struggles…

Take a second to flashback to 2007 through 2009, the big housing bubble and burst... This is what is fresh in the minds of Gen X and Millennials: the construction industry taking a big hit after the downturn of bad loans, bad deals etc. All of this was thanks to what became known as “Subprime Mortgages.” These mortgages were given out like candy to higher-risk applicants. But that is another story for another day. The construction industry took a big hit after the bubble popped in 2008, along the lines of 5 billion jobs lost according to the International Labor Organization.

Now fast forward to February/March 2020, after a slow build and plateau from 2012-2019, enter the infamous Covid-19 pandemic that has caused chaos around the globe. I’m not going to go down the political rabbit hole, but businesses shut down, restrictions and curfews were developed leading to a change in lifestyle that left many stuck in their own homes for longer than they can ever remember.

So that poses the question, the Real Estate Industry started to pick up. Why? There were many articles and talk show specials about storefronts becoming a thing of the past and that working from home would be the new norm. Studies have been done to support this idea, and one stated:

“On average, those who work from home spend 10 minutes less a day being unproductive, work one more day a week, and are 47% more productive.” - Apollo Technical

That’s great, but there was one tiny problem: how many homes have a dedicated home office? Families wanted more space and to have a dedicated office space. The local home inventory was shrinking already at the onset of the Covid pandemic. New construction was a reasonable alternative, in theory. The only problem was that the number of construction companies had decreased after the housing crash of 2007-2009 and the ones still standing were very cautious and about how many homes they carried under their company umbrella. Not to mention the lost jobs that were still had not been filled.

Many industries that support the construction industry still have not recovered from the shut down of 2020. Industries like window manufacturing, granite and stone companies, even wood companies are not back to full operating capacity. Combine that with backlogs of close to a year and everyone wanting to finish that DIY project on their home now more than ever, this has driven the new construction cost locally (Richmond, VA) upwards to over $25k from 2 years ago. All because of supply and demand needs that cannot be met currently.

Will they catch up? Maybe someday, but that today, is not that day…