Building in the Time of COVID-19
- May 08, 2020
There is not a single industry that was not affected by the COVID-19 health crisis and, although the multifamily market is not as badly hit as others, it still struggles at different levels depending on the geographical location. The main issues defining these struggles stem from stay-at-home orders, as well as social distancing guidelines, which limit the number of workers allowed on construction sites. Finally, there is also the major supply chain disruption, which puts further pressure on development deadlines.
“Throughout most of the country, construction is classified as essential and sites are indeed still open,” said Aaron Emigh, co-founder & CEO of Brilliant, a San Mateo, Calif.-based firm specializing in smart home technology. The company is working with several builders on residential projects.
“If builders stop building, it will cause huge problems across the board,” stated Brandon Tatta of Graham Hart Home Builders and collaborator of Brilliant, as “there’s a lot of capital involved with these projects. Building sites can be considered ‘safer’ zones as social distancing is more doable on these sites.” Nonetheless, he continues, “management teams need to be extremely mindful to not schedule contractors on top of each other to make sure they’re able to adequately distance themselves. They also need to strictly follow CDC regulations and provide proper sanitation equipment and PPE to ensure workers’ safety.”
Still, shutdowns were seen in Washington, the San Francisco Bay Area and parts of Greater Boston, but over the last couple of weeks, construction activity has slowly resumed in these areas as well. “As long as proper guidelines are met, and the virus does not infect job sites, most will remain open. The housing crisis in this country does not dissipate because of a pandemic,” said Fairfield Residential Executive Vice President for Development Tommy Brunson. Despite the robust multifamily supply additions in recent years, which averaged some 300,000 units per year, according to Yardi Matrix data, demand for housing is still elevated.
Fairfield Residential’s teams abide by the current social distancing measures with the use of PPE—COVID-19 safety language for personal protective equipment—job-site trailers and portable facilities that undergo multiple cleanings per day, and wash stations. Moreover, subcontractors are reporting on individual workers’ locations and health conditions each day.
Even though construction is ongoing in most parts of the U.S., completion dates are pushed further away, not just because of supply shortages or impacted subcontractors, but also because of municipal delays in permitting or inspections. Cancellations, on the other hand, are not—yet—on the horizon due to continued strong demand for housing.
High time for smart tech
Emigh sees the silver lining of these unprecedented times and not just in his niche. “Across the board, smart home technology manufacturers are seeing more interest as builders and property managers are becoming extremely dependent on these features for virtual tours and remote home showings.”
Technology today enables virtual touring and helps property managers limit person-to-person contact. Builders too are now realizing how important an investment in smart home technology really is. It’s a big incentive for smart home tech providers to continue innovating as it’s becoming increasingly apparent that we’re unlikely to get back to normal in the immediate future and that there will be a “new normal.”
Emigh said that the shutdown of production in China at the start of the year caused delays for his company, and, to continue operations, Brilliant had to prioritize its inventory on hand for builders and multifamily owners and operators.
“To ensure that we had the inventory for them, we actually temporarily stopped taking consumer orders, which was a little painful for us to do, but it enabled us to preserve the supply for builders. Now that China is coming out of its lockdown, our supply chain has been restored and we have fully replenished inventories,” he said.
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The use of technology in various aspects of the business is also anticipated to continue once the shutdown is over and people can move around freely.
“Not only does smart tech help with social distancing, but it differentiates apartments and homes for the coming surge in relocations when shelter-in-place is lifted,” Emigh added.
Will prices go up?
The U.S. was already facing a labor shortage in the construction industry and COVID-19 is another pressure point in the scheme. Insufficient information and fear make laborers not show up for projects, and some of those who do, begin to ask for increased prices since they feel they are more at risk by being at work.
The slowdown in manufacturing will also continue to impact the financial part. However, for the long term, there are mixed views on the decrease in construction costs. While some fear that the current crisis will lead to a price surge, others are optimistic.
“The reduced supply of construction starts and the recent drop in material pricing—lumber, copper, petroleum-based products—should moderate recent construction-cost inflation rates,” Brunson said.
Things are just as volatile when it comes to home prices, though many expect a decrease following the pandemic.
“Building companies and realtors are going to have to be very strategic in order to remain competitive, as soon as buyer activity picks up again, home prices will have to be even lower than they are now, in the immediate aftermath,” Tatta added.
The ‘new normal’
While “caution” is the first word that comes to mind when bringing up the future of the construction sector, some of the changes triggered by the pandemic might become part of the new normal. In addition, as working from home is becoming the norm, architects and builders are considering this aspect for their upcoming projects, incorporating technology to support the cultural shift.
“Smart tech will continue to increase in importance and virtual tours and remotely guided tours will become more prevalent. As it relates to home design, builders are reconsidering how people will live and work long term,” Emigh said.
Unlike the 2008-2009 economic crash, the current economic impact is not focused on debt or real estate. The housing market was healthy before the coronavirus pandemic and demand was strong. Interest rates are historically low and, Emigh hopes, this will likely continue for the foreseeable future, which would help make homes affordable.
“While the industry is likely facing an immediate slowdown in home purchases because of deteriorating economic conditions, this may conversely mean an increase in rentals, and we’re hopeful that once the spread has been contained, the bounce back will be swift,” he continued.