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It’s no secret that in most business types, demand is affected by price changes. We know that demand for a service or product will usually increase quickly if there is a drop in price – or – it will decrease quickly if prices rise. This, in turn, usually affects supply. But construction is a little different, and contractors need to be aware of the relationship between supply and demand in their backyard.

In construction contracting, demand drops if prices increase. And when we say ‘prices’ we’re talking about the cost to owners or “customers” for our services, not the price of labour or materials. So why does this happen? Well, because the decision to build a new home or commercial property is a huge commitment, it’s considered at length, costs are carefully compared, and ultimately the project can be delayed or altered if the timing or market isn’t right. Meaning owners can decide to hold off on building until the market is better – or even consider alternatives such as renting short-term or renovating an existing property. 

However, this doesn’t mean that ‘supply’ – i.e. the number of contractors in the game – is equally impacted. You don’t see contractors pulling up stumps and putting down the tools because demand has lessened. These are tradespeople who have committed years of their working life to learning their trade and gaining experience – and they’re not as likely to be considering a career change when they’ve committed so much time and training to their trade. So the supply-demand phenomenon differs a bit there in comparison to other industries.

And it’s for this same reason that you don’t see a rapid increase in contractors – or  ‘supply’ – when demand goes up. There are no quick ways into contracting in the construction industry, no shortcuts. You can’t simply do a weekend course and become a certified and skilled professional in this industry. And let’s face it, we don’t see as many kids these days chomping at the bit to get into an apprenticeship in the construction trades. Industry statistics show that proportionally, there are fewer kids entering construction apprenticeships today than there were 20 years ago. 

However, interestingly enough, there are substantially more construction companies and contracting firms these days than there were 50 years ago. With the rise of university degree-wielding construction professionals with little-to-no field experience – you can see how this has come about despite a drop in apprenticeships. 

With so many more construction companies in the game – and the fact that many apprentices or employees will eventually go out on their own and start their own business – it’s highly unlikely we’ll see a drop in ‘supply’, and therefore competition. So naturally, we contractors have more competition but less profit to be made due to the need to remain competitive – which usually results in decreased profit margins.