WildHorse Creek in Chesterfield, Missouri

Five Hurdles General Contractors Face in Today’s Dynamic Multifamily Arena

by Channing Hamilton

— By Erick Hartzell, project director, Brinkmann Constructors —

As the housing market generated uncertainty in a pandemic-driven economy, many individuals gravitated toward the stability and convenience of multifamily housing communities. Amid the rising demand, shifting consumer priorities urged developers and contractors to refocus on this subsector, allowing multifamily construction to boom. 

Regardless of the steady influx of multifamily developments, demand remains prominent. As contractors work to meet the demand, there are several significant challenges to be aware of, including a lack of qualified labor, a rise in material prices, limited financing opportunities, oversaturated markets and a large project backlog for similar developments.

1. Lack of Qualified Labor

The lack of qualified labor remains a pressing concern across all industry sectors. An aging construction workforce has resulted in a shortage of experienced laborers to maintain the workload. Available candidates often lack the skills needed for the field and this workforce shift poses challenges for construction companies in recruiting and retaining talent. With one in four construction workers over the age of 55, this issue is far from a resolution.

According to the Associated Builders and Contractors, the construction industry must hire 324,000 more workers than normal to meet the growing demand in 2024. Dedicated, personalized recruitment efforts can help attract and retain qualified talent in search of new and valuable opportunities. Programs encouraging young students to develop technical skills and eventually join the trades is vital to building a robust and qualified subcontractor pool and improving the qualified labor market for the future.

2. Material Prices Continue to Rise

Following the impact of COVID-19, construction material suppliers struggled to meet builders’ demands due to labor shortages in their own operations. This pattern drove suppliers to increase the prices of materials such as concrete products, copper wire, iron, steel and wood products to maintain profitability in an unsettled economy. The Associated Builders and Contractors reported that construction material pricing rose 1 percent in January 2023, a 5 percent increase from January 2022.

While navigating material pricing fluctuations, it’s important to maintain positive relationships with both suppliers and subcontractors to help stay informed of the best offerings and product availability. The sooner a contractor can get involved in a project and understand the design to confirm the material selections, the better to lock in pricing.

La Tela Condominiums is a 92-unit community in Denver, Colo. Shanahan Development delivered the project in August 2021. Brinkmann Constructors was the general contractor.

3. Tightening Financing Opportunities

While multifamily developers navigate the economy’s effects on construction, they are cautious to initiate new projects. Rising building costs, investor uncertainty, undesirable interest rates and strict lending terms are among the factors influencing decision-making for new projects. In the current unpredictable market, developers must create data-driven strategies and consider forecasted trends before securing plans for new projects.

4. Oversaturated Markets

Increased construction of multifamily developments in 2022 has caused many areas to become oversaturated. Slowing renter growth means that developers face difficulties in renting units in existing and under-construction developments. This trend has led some developers to pause on new project plans, while others strategically consider location and the projected growth for each new building area.

Although this oversaturation exists in some U.S. markets, the overall housing market is short by 6.5 million homes. Multifamily developments are an excellent remedy for shortage, and as the economy stabilizes and inflation slows, the opportunity for new multifamily will continue.

5. Project Backlog for Multifamily Developments

When last year’s multifamily boom took the sector to new heights, the demand compelled developers to take advantage of the trend. As market complexities came to the forefront at the end of 2022, a lack of materials, financial resources and skilled labor caused project delays that carried over into 2023. 

Many developers had to reconfigure building schedules to mitigate the backlog. The National Association of Home Builders reported that 943,000 apartments were under construction at the beginning of 2023. This number was up nearly 25 percent from 2022 and is the highest count since 1974. Managing a project backlog can be tedious and burdensome. In this situation, it’s important to be transparent and maintain consistent lines of communication with clients. Setting realistic schedule deadlines and addressing concerns early on can help fix issues before they become problems. 

Regardless of these inevitable hurdles, the need for multifamily developments persists as elevated interest rates keep potential homeowners out of the buyer market. When navigating the challenges of the present and preparing for the future, it’s important to fully understand the economic circumstances in the communities where the building is occurring, paying close attention to market saturation, regulatory changes and the need for innovative designs and amenities to stay competitive. 

Erick Hartwell is the project developer at Brinkmann Constructors, a general contractor and construction company headquartered in Chesterfield, Missouri. He joined the company in 2018.

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