With challenges present on both the demand and supply sides of the equation, the economic outlook for residential construction suggests growth, but growth that’s slow and choppy rather than swift and smooth. On the demand side of the coin, challenges include higher interest rates and rising home prices that are stifling demand. On the supply side of the coin, materials and labor costs have escalated in the past few years, cramping profit margins for homebuilders.

The LegalShield Law Index, a suite of indicators of the economic and financial status of U.S. households and small businesses, points to strong consumer financial health, but the index takes a less optimistic view on the housing market. For instance, the LegalShield Housing Activity Index suggests housing construction momentum has stalled in 2018 thanks to factors like labor supply shortages and rising labor costs, alongside rising prices for lumber, steel, and aluminum.

Similarly, a new report by the California Homebuilding Foundation details multiple factors that drive up the cost of building a new home in today’s market, such as development fees, delays stemming from regulations, high materials costs, and materials shortages—especially framing lumber.

The industry is increasingly turning to technology and new construction methods, such as prefab, to compensate for the economic conditions that can squeeze profits. Among the benefits of building homes offsite in a controlled environment are improved cost and schedule certainty, greater precision and quality control, and safer work conditions. In the residential construction space at large, the trend toward prefab may boost profits by leading to faster, cheaper construction.

Companies like Nomodic, based in Alberta, Canada, are capitalizing on this trend by specializing in hybrid, prefabricated construction. Nomodic recently announced it will begin building modular supportive housing complexes as part of BC Housing’s Rapid Response to Homelessness initiative. The three-story Terrace complex will be 27,000-sq.ft., and the three-story Smithers complex will be 14,000-sq.ft., and each building will include commercial kitchens, indoor and outdoor communal living spaces, and will exceed energy code requirements, demonstrating that prefab and quality can go hand-in-hand.

To learn more about the economic outlook for both residential and commercial construction, check out the new issue of the magazine—available today.

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