Real Estate & The Supply Chain

Nov 4, 2021

The supply chain crisis is all around us. It’s almost impossible to ignore. So, what’s causing it? What does it mean for real estate investors?

The Supply Chain Crisis

Average people and business owners have been experiencing the supply chain crisis on a daily basis. 

Favorite foods are out of stock, with empty spaces on store shelves. Trying to order furniture is a gambling game, never knowing if or when you’ll get the items you’ve paid for. 

Inflation is a big result of that. Or some may argue is the reason for it. Limited supply means retailers believe they can charge more for essential products. They are certainly benefiting from this narrative.

Other reasons floated for the crisis have ranged from the White House blaming a wildly positive recovery, to them saying that manufacturers have been slacking on production and ordering on time. Others blame new regulation and a lack of truck drivers and people not wanting to work. 

Whether real or orchestrated, the fact is that we are experiencing supply chain delays. For some that is triggering panic buying and hoarding. For others it has meant refusing to cave to the pressure and sitting back to let it play out instead. 

While looking at the reasons given for this and the dynamics and policies in play, there seems no logical reason this trend will subside in the short term. Though JP Morgan’s Jamie Dimon has claimed that this won’t be an issue at all in 2022.

Real Estate And The Impacts Of The Supply Chain Crisis

This has certainly trickled over to the real estate sector in many ways. 

Shortages of material is probably the most obvious. Some construction materials just haven’t been available anymore. Home stagers are certainly stressed out with trying to secure furniture and accents for homes. 

Inflation is the other big impact. This is far more widespread than many realize. For a while lumber prices were up around 30%. Labor costs have also gone up. It takes a lot more to make it worth people getting out of bed in the morning to go to work than it did two years ago. Everything costs more for them. Consider the average construction worker now pays 30% more on just about everything they buy. Most workers can’t afford to take a 30% pay cut. Then logistics costs are up. Even if you are willing to pay higher material prices and can find the labor, gas prices are way up to coordinate it all as well. 

In tandem with record high demand, this has also led to housing shortages, and fewer new construction units coming to the market in the right places. 

This in turn has fueled a dramatic increase in property prices and rents. Typically far outpacing the inflation in material and labor costs. 

Investing Ahead Of It

The truth is that no one knows 100% what is going to happen over the next year. Certainly not how supplies will flow and how high inflation will be. 

Fortunately, real estate can benefit from both directions. Ongoing shortages will make existing inventory more valuable. A smoother flowing supply chain and easing of the pace of inflation will mean people have more disposable income to spend on housing. 

It’s a win-win scenario. Especially for those that have invested ahead of it. 

Investment Opportunities

Find out more about investing in secured debt and real estate, go to NNG Capital Fund