Key Takeaways:
- The building and construction segment gave the highest score to the overall Kitchen & Bath Market Index as well as Industry Health for the 4th quarter of 2021;
- Two-thirds of builders are experiencing backlogs of three months or more;
- The ongoing shortage of skilled tradespeople has forced many construction firms to raise labor rates to attract and retain talent.
By Dianne M. Pogoda
The Kitchen & Bath Market Index scored 82.1 out of 100 in the 4th quarter of 2021, and NKBA members in the building and construction segment were among the key drivers of this near-record rating. Builders ranked the overall index at 82.5, and rated industry health at 8.2 out of 10, also surpassing the 7.9 average for that category. This bullish rating comes despite some project postponements during the holiday season, ongoing challenges in securing enough skilled labor to tackle projects, supply-chain woes and inflationary pressures driving prices higher.
The KBMI quarterly survey, conducted jointly by NKBA and John Burns Real Estate Consulting, examines current and future demand for the kitchen and bath industry, as well as challenges faced by four main NKBA member segments: Designers, Manufacturers, Retailers and Building/Construction professionals. The most recent survey for Q4 2021 garnered 854 responses, the highest ever in the survey’s history.
With a continuing focus on the home that has lasted for nearly two years, consumers’ appetites for large-scale remodels have remained hearty — and there’s no sign of weakening. But the spiked demand has led to an overload across the entire system. Manufacturers can’t keep up with production, the well-documented disruption of the supply chain continues, and fewer skilled tradespeople to service an increasing number of jobs means projects take longer — not only to finish, but even to get started.
Builders report they are busier than ever, and 57 percent anticipate increases in project requests. In the 4th quarter, they projected longer job cycle times would push projects well into this year. Nearly two-thirds (63 percent) said backlogs stood at three months or more, with 26 percent saying their backlogs stretch well into the second half of 2022. Building and construction firms saw an uptick in deferrals during holiday season — not an unusual occurrence — and they expected demand would resume and even rise in the first quarter of this year, to extend those backlogs even further.
Despite purposefully extending project schedules, 45 percent of builders said most of their pipelines were behind schedule in Q4 compared to Q3, with a general lack of subcontractor labor and product shortages the main culprits.
So, how are they coping?
Builders are delaying project starts until all products/materials arrive on site. “We have been ordering materials much earlier and also waiting to start jobs until 90 percent of materials are in,” said one. “We’re investing in a lot more warehouse space to store products as they arrive. The products are sitting until the majority arrive in-house.” These warehousing costs are being passed along to the client in many cases.
Others noted they are ordering materials as soon as they have a signed contract, and they’re requiring clients to buy appliances directly — often ordering them before the design is finished or the project has started. Some builders said they plan to start projects six months after contracts are signed from the start, to manage client expectations and allow enough lead time to ensure all materials are in so the job can be expedited once it gets started.
The nagging labor shortage that has plagued contractors for years was exacerbated during the pandemic, owing to the combination of growing demand and a retiring workforce. In fact, recent figures from the Bureau of Labor Statistics show there are still 380,000 unfilled jobs in the construction industry. This crunch has resulted in double-digit labor rate increases across 72 percent of building and construction firms in Q4 2021, with 36 percent of firms increasing wages between 10 and 19 percent, and 24 percent of companies raising rates between 20 and 29 percent to stay competitive, attract and retain employees.
Gazing ahead, the overall KBMI rating for future business conditions stands at 76.6, with builders exceeding that at 77.2. So, despite the challenges, builders remain optimistic that the year ahead will remain robust.