COVID-19 will have many effects on housing markets in the coming weeks and years. One of the near-term consequences of the spread of and response to the virus is likely to be delayed construction due to office closures, construction moratoria, supply chain disruptions, and risks to the labor force.
Before the pandemic, multifamily housing construction was booming, with a new cycle high of 403,000 starts in 2019. Single-family construction had remained depressed since the last recession, with 12 straight years of starts under 1 million, but were growing, albeit slowly, over the last eight years, reaching 888,000 starts in 2019. The construction pipeline was also robust with 1.2 million units currently under construction, including 652,000 units in multifamily buildings. The housing market was set to have some big completion numbers in coming years, but delays in construction mean those numbers almost certainly will be lower than expected.
There are four immediate reasons why projects might take longer because of the pandemic, and the extent that each of these might delay construction varies widely by jurisdiction:
1. Local building services offices are closed or adopting new processes
Many city offices are currently closed to the public as staff work remotely, leading to delays in permitting, reviews, and inspections. Some jurisdictions have created online systems to continue accepting permits. However, even some large cities were not equipped to transition online immediately. The Atlanta Journal-Constitution reported at the end of March that Atlanta was not accepting new construction permits until it got its online system up and running. Permitting may also be delayed as local offices struggle to review permits or plans that were previously submitted in person and as staff adjust to working from home.
Projects requiring review by a planning, zoning, or historic preservation board may also be delayed as in-person meetings are restricted. Cities have dealt with the obstacle in different ways. DC’s Zoning Commission cancelled all upcoming hearings until further notice, effectively putting projects that were scheduled for review on hold until an in-person meeting can be held. Chicago’s Zoning Board of Appeals similarly postponed its March convening to April. Meanwhile, other cities have moved public meetings online, with Newton, Massachusetts hosting public hearings for special permits on Zoom to keep projects moving through the process. Even so, 90 percent of builders surveyed by the National Association of Home Builders (NAHB) in the first week of April responded that the coronavirus has had an adverse effect on the length of time it takes to obtain a plan review.
Inspections are another chokepoint where construction could be delayed. The NAHB survey found that 76 percent of respondents experienced inspection delays. Miami-Dade stopped inspections entirely, directing builders to hire independent architects and engineers to verify that the work was done correctly. Miami is an extreme case, however, with most jurisdictions continuing inspections but under new safety protocols or offering Zoom inspections for certain types of projects.
2. Shutdown of nonessential construction
As state and local governments have implemented shelter-in-place orders, there has been variation in whether residential construction is classified as essential work that can continue. Six states – Michigan, New Jersey, New York, Pennsylvania, Vermont, and Washington – have halted most residential construction. New Jersey and New York have special provisions allowing affordable housing projects to continue. In the absence of statewide shutdowns, some local governments have issued their own residential construction halts. Among these, Boston, Cambridge, and Somerville, Massachusetts, have stopped all new residential construction. San Francisco and Austin have similarly shuttered residential construction sites but exempt affordable housing projects from the ban.
We do not know how many projects have been stalled due to these orders. In a survey by the National Multifamily Housing Council (NMHC), 62 percent of the leading multifamily construction firms reported delays due to a construction moratorium. The timing of these orders has varied widely though, and the length of shutdowns will matter. Boston issued the construction halt in the middle of March while New Jersey just issued their order. Regardless, construction bans will at the very least affect supply in several major cities across the country.
3. Supply chains have been disrupted
Even projects that are allowed to move forward can face delays due to disruptions in material supply chains. The global nature of the pandemic means that materials sourced from other countries are nearly all delayed, and builders felt the impact of the virus before cases were widespread in the US. The New York Times reported that disrupted supply chains for marble, tile, paving stones, furniture, lighting equipment, and elevators have held up residential construction in the US. In the recent NAHB poll, more than two-thirds of respondents were experiencing difficulties with obtaining building supplies due to the coronavirus. Builders are adapting by finding US suppliers where they can, but these suppliers may not be able to ramp up production quickly enough to meet new demand.
4. Construction labor force is at risk
Even before the pandemic, the construction industry was facing a labor shortage; indeed, the number of job openings passed 300,000 for the first time in 2019, marking a 76 percent increase in just two years. Maintaining the current labor force will depend on keeping construction workers healthy on job sites that have not been subject to shutdowns. Working in close proximity and in places where there is often limited access to hand soap or sanitizer has made it difficult for construction workers to adequately protect themselves. Before New York put a moratorium on most construction, workers at multiple sites tested positive for COVID-19. Many feared contracting the virus at work and have had to make difficult decisions about whether to continue working.
National shortages of N-95 masks (which are commonly used on construction sites) further compound the risks for construction laborers, exposing them to dust particles. While some builders and remodelers had boxes to donate to hospitals, others are down to the end of their supplies and may delay projects until proper protective equipment can be obtained. Implementing safety protocols that provide social distancing and waiting for masks to arrive can slow projects down. But these steps protect the health of workers and help retain the existing construction labor force.
COVID-19 will surely result in construction delays. What remains unknown is the effect these delays will have on the number of started and completed housing units this year, whether financial strain on developers might lead to longer-term disruptions to new construction, and how lenders and builders will react in coming months. New construction activity has already pulled back with a 22 percent drop in housing starts in March following three months of starts over 1.5 million. Starts were still up year over year, though, and it is unclear how much starts might drop in coming months. Finally, the question of whether housing construction is essential also remains contested in the face of an ongoing housing affordability crisis, the desire for builders and construction workers to remain employed, and risks to the safety of those workers.