What Are Multi-Family Buildings?
A single building that has been partitioned to allow for the independent habitation of multiple families is known as a multi-family home. Simply put, a building that allows separate living facilities for multiple families in the same building is called a multi-family home. They can be single-family homes or small apartment complexes with up to four separate units, or they can be duplexes which contain two residences.
NMHC Survey
According to a recent survey conducted by NMHC, most multi-family developers are having trouble with project delays caused by financing, material price hikes, and permitting issues. A staggering majority of respondents (more than 90%) reported experiencing delays in the construction process, and these delays can be quite expensive. A delay of one month in the apartment’s development means that the investors have to bear an additional month’s interest on the project’s construction loans. Not only this, but the delay also means losing a potential month’s rental income had this apartment been built on time.
Major Reasons for the Delays in Multi-Family Construction
Increased Cost of Materials
Rising prices and widespread material shortages continue to be major issues. In November 2020, 82% of multi-family construction companies reported price hikes for materials. All respondents reported higher prices for the second consecutive month, with the average company experiencing a 13% price increase over the previous three months for its most impacted materials. The escalating shortages of essential building components are also driving up contractor expenses. The material shortage adds to the suffering of contractors as it fuels the higher material pricing issues.
Delays in Permitting Times
As the name suggests, permitting time delays refer to a delay in obtaining a permit despite the seller’s commercially reasonable efforts. 83% of respondents reported their struggles with permits and start-time delays. The major causes of these initial delays, identified by the respondents, were permitting and entitlement issues. Close to 40% of respondents observed economic uncertainty as the major reason for delayed starts. A growing segment of respondents also reported financing issues as a key contributor to these delayed starts.
Skilled Labor Shortage
It is no surprise to find the mention of labor shortage on this list. Skilled and experienced workers are required to operate heavy construction equipment. An acute labor shortage has steeply affected the overall construction industry. Multi-family contractors are no exception to this. One-third of the respondents reported facing a labor shortage.
Generally, the industry catered to this issue by providing more compensation to employees or by giving them additional benefits and incentives. These strategies helped in retaining more employees and reducing the employee turnover rate. However, this is no longer the case, and 54% of the participants reported facing labor shortages even with increased compensation levels. The average compensation rate offered by these firms for retaining more employees was close to 12% higher on average.
Lack of Construction Financing
Construction financing issues are rapidly growing to become one of the biggest contributors to construction delays. In March, 7% of respondents reported construction financing as the reason for construction delays. The number of these respondents doubled by June and reached 15%. The latest figures reported in September revealed that 31% of participants blame construction financing issues for the delays. This rapid increase in the number of delayed cases reported due to construction financing is an alarming factor, and this issue needs to be taken seriously before it gets worse like the labor shortage crisis.