Construction industry outlook for the new year

Attorneys Gregory Chakmakas and Chloe Golden contributed to this recent NHBR Ask the Experts article.  The full article can be found here.

As the New Hampshire construction industry heads into 2024, it continues to face high costs for materials and labor, making it difficult to meet the demand for affordable housing. In this week’s New Hampshire Business Review, we connected with Granite State construction industry experts to gain greater insight into these issues.

Our panel: Gregory Chakmakas, shareholder, real estate and affordable housing attorney; Chloe Golden, associate, real estate and affordable housing attorney, Sheehan Phinney Bass and Green,; and Joseph Campbell, president of North Branch Construction,

Joseph Campbell, president, North Branch Construction

Q: What does it take for construction firms to maintain the skilled labor force they need to take on multiple projects? 

A: Most, if not all, industries are facing historic labor shortages. Never has it been more important to attract new employees and retain existing employees. North Branch Construction has improved our presence on social media to heighten the awareness of opportunities within the construction industry. We also find that investing in training opportunities for our current employees helps them grow in their career and has a positive impact on retention. In a recent renovation of our headquarters in Concord, we built a new 60-person capacity training facility to assist in our ongoing employee training and development efforts.

Q: What are some of the best things a construction firm can do to achieve a healthy bottom line in 2024?

A: This year was a record year at North Branch Construction. We are also heading into 2024 with a healthy backlog of work. This allows us the ability to be more selective in the projects we go after. In the coming year, securing the best subcontractors and vendors prior to them becoming fully booked will be crucial to ensuring projects are properly staffed. More than ever, the importance of maintaining strong relationships with subcontractors and vendors will be a key factor in our success.

Q: What were some of the toughest challenges construction firms faced in 2023?

A: The construction industry is still challenged with a number of material procurement delays as a result of the recent global pandemic. Electrical components, such as meter boxes, switchgear and panels, carry lead times of over 12 months. Large mechanical equipment lead times have also doubled in the past year. Most recently, rockwool insulation, a product that has traditionally been readily available, is out of stock with suppliers. To combat these challenges, we look to procure materials much sooner than in prior years.

Clients have also become much more tolerant of paying for stored materials to ensure they are readily available when needed. To assist in this effort, North Branch Construction is building a 15,000-square-foot warehouse for secure off-site storage of materials for projects that require it.

Q: Why is it important to work with a construction management firm? 

A: The complexities of today’s construction techniques and the speed at which projects now progress from concept to construction have caused many owners to choose the construction management method of project delivery. North Branch Construction wholeheartedly embraces this evolution. The construction management method brings the project team (owner, design team and construction manager, or CM) together earlier than the stipulated-sum method.

This allows the owner and design team to avail themselves of the CM’s services providing expertise and recommendations regarding cost, constructability and scheduling during the planning and design phases of the project. On projects large and small, we have found the CM process to be an ideal means of harnessing the expertise of the construction team early in the process to assist in design development, to avoid change orders, to identify and review value engineering options, and to incorporate features into the project that achieve the owner’s intent and maximize building performance, while minimizing project costs and future operating costs.

Q: What are some of the best ways to combat global supply chain disruptions and higher prices for important building supplies?

A: We find the best way to combat the global supply chain disruptions and the potential of cost increases to be pre-planning and early procurement. We work hard during the pre-construction period to identify what products have the longest lead times. On some occasions we make recommendations to substitute with other products of equal value that are more readily available.

In recent years, we also started stocking up and storing certain items such as fasteners, plywood and rigid insulation that all had unpredictable availability at times following the pandemic. By working with a CM early in the design process, our experience and lessons learned from previous projects can have a positive impact on the final project design and schedule.

Gregory Chakmakas, shareholder, real estate and affordable housing attorney, Sheehan Phinney Bass & Green

Q: What are some ways that Sheehan Phinney has been specifically helping New Hampshire clients with construction and housing issues?

A: Building new affordable housing and preserving housing requires strategic collaboration with diverse stakeholders, including government agencies and debt and equity partners, to navigate an increasingly complex set of programs and incentives. We use our expertise to guide affordable housing developers through transactions with a focus on providing practical and innovative solutions to help identify opportunities that will result in more affordable housing for local communities.

For example, we recently helped a for-profit developer and a local housing authority acquire and finance a new development using both 9% and 4% low-income housing tax credits. The “twinning” of 9% and 4% credits on the project was the first of its kind in New Hampshire.

The project was financed with a mix of subsidy, tax credit equity and tax-exempt bonds credit. Getting to closing required a legal team with experience across many fields: tax, real estate, land use, corporate, debt and equity finance and development. I am very proud of my colleagues at Sheehan Phinney, who were able to deliver a broad set of skills to help make this project happen.

Q:  What are some of the affordable housing trends you see? 

A: Housing demand and widespread calls for solutions will continue to drive innovation and creative partnerships in affordable housing development. The demand for affordable housing continues to greatly outpace supply.

According to New Hampshire Housing’s 2023 Residential Rental Cost Survey Report, the statewide vacancy rate in early 2023 was 0.6% (a 5% vacancy rate is considered a balanced market for landlords and tenants). This limited availability of rental units puts upward pressure on rents, and the corresponding consequence of inadequate affordable housing options is likely to continue for some time.

New Hampshire Housing estimates that New Hampshire requires 23,670 new housing units to meet our current need. By 2040, estimates indicate we will need almost 90,000 units. Meanwhile, resources to meet this supply crunch are constrained. To address this affordability crisis, we must find new ways to build housing. This will create opportunities for less conventional structures and more creative players.

Chloe Golden, associate, real estate and affordable housing attorney, Sheehan Phinney Bass & Green

Q: What are the most difficult challenges New Hampshire faces in the construction and housing industry?

A: Sharp increases in construction materials and labor costs since the beginning of the COVID-19 pandemic, together with increases in interest rates, create budget shortfalls that jeopardize project completion. In the current environment, characterized by unpredictability and increasing costs, affordable housing developers need more resources to produce the same number of housing units.  Unfortunately, funding sources haven’t grown at the same rate as costs. While developers can continue to succeed with a little speed, creativity and flexibility, the best solution is continued commitment to increase resources to produce more units.