As the construction industry recovers from the COVID pandemic, supply chain issues and rising prices are creating new challenges. Building materials and skilled labor are in short supply, and costs are increasing at rates not seen in years. These market conditions affect construction insurance and risk management in many ways.
New York Construction Outlook
According to Construction Dive, construction in New York sank during the pandemic, when non-essential construction was halted for 11 weeks. However, construction soon began to pick up. The New York Building Congress estimates that construction activity in New York City in 2021 will reach approximately $60.6 billion, which is a 26% increase compared to 2020.
Although construction activity is increasing, the direct and indirect effects of the epidemic continue to affect the market, and other political and economic factors add to the difficulties.
Contractors Struggle With Rising Product Costs
The National Association of Home Builders It is estimated that construction costs have increased by 33% since the start of the pandemic.
According to New York Construction Report, the prices of many things have risen sharply. The Associated General Contractors of America analyzed government data and found that November’s rate hikes outstripped the rate at which contractors raised their wages. Almost every type of product saw price increases, with the price of cars also rising by 16.3%.
Issues related to food distribution have been in the headlines in recent months. According to an economist at University of Rochester, the purchasing situation has not been this bad for 50 years. The current crisis began when factories and ports were closed during the pandemic, and was exacerbated by the high demand for consumers. Now the war in Ukraine and sanctions against Russia are adding to the supply chain problems.
Construction has also been affected. In the Commercial Construction Index Q4 2021 from US Chamber of Commerce, 95% of contractors surveyed say they face at least one shortage problem. Contractors also said they are concerned about the impact on equipment prices, with 49% saying that new construction and equipment prices will have a high or very high impact.
According to Supply Chain Dive, in light of Russia’s invasion of Ukraine, US contractors are dealing with military threats, inflation and other factors all at the same time. Because Russia is a major producer of aluminum and copper, these materials are expected to see additional price increases – and this comes after the 33% and 25% year-on-year price increases recorded in January.
Shortage of Skilled Workers
According to the Commercial Construction Index Q4 2021 from US Chamber of Commerce, 91% of contractors say they are struggling to find skilled workers, and 62% indicate it is very difficult. A year ago, only 42% of contractors reported more problems. The lack of workers will force contractors to change their practices in various ways, such as refusing work and upgrading their businesses.
Labor shortages have been a common issue since the pandemic, but the construction industry’s woes are not recent. According to HIB Construction Labor Market Report, the lack of construction work is hindering the expansion of construction work, and in 2020, sales exceeded construction work. To meet demand, the construction industry would need to hire an additional 2.2 million between 2022 and 2024.
However, according to McKinsey & Company, skilled construction workers are being lured to other industries, including transportation and warehousing, with better wages and working conditions. At the same time, education has been suspended since the pandemic, and it has also become difficult to attract workers from other countries.
These issues affect insurance and risk management in many ways:
- All homeowners should review their property insurance limits for coverage. Given the scarcity of resources and shortage of workers, projects take longer. Due to inflation and inflation, projects will also become more expensive and insurance limits may not be sufficient.
- For the same reasons, contractors should review the limits of the builder’s insurance for the work in progress.
- In light of the current job shortage, maintaining workplace safety is more important than ever. New and untrained workers are more likely to make mistakes that lead to problems and accidents.
- Careful risk management with subcontractors is essential. Your subcontractors are also struggling to recruit and retain talent and as a result, have the same exposure.
- Beware of entering into contracts/bonds related to services that may be affected by market conditions.
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