HOAs: Will Inflation and Supply Chain Issues Impact your Reserve Study?

The economic effects of the COVID-19 pandemic have caused massive supply chain disruption, affecting numerous industries across New Jersey. Due to delays in production processes, manufacturing hubs struggled to keep up with the soaring consumer demand that resulted in empty shelves and storage.

Moreover, the bottleneck in ports worldwide is considered the prime factor of the issues that the global supply network is experiencing. In addition to that, the lack of truck drivers also plays a vital role in the supply chain mess. In a press release, the US Department of Transportation has stated that turnover rates reached over 90% as drivers regularly leave their companies.

Apart from the scarcity of goods and raw materials, the current alarming situation in the supply chain led to record-breaking high prices in various commodities. For the past six months, the inflation rate in the country hovered around 5% or higher, peaking at 6.8% last month. This rate is the highest since 1982.

The construction and engineering industry is one of the sectors most affected by the situation. In the past year, multiple lockdowns and workplace closures caused significant interruptions in property construction and the production of resources in this sector. Also, the existing financial reserve of homeowner’s associations (HOAs) might already be outdated, especially for projects due soon.

Reserve Fund

Understanding the financial reserves is one of the essential tasks in serving a community. Contrary to the operating fund used for the regular operations or maintenance of the neighborhood, the reserve fund is crucial in covering the cost of future repairs or replacements for the common assets.

As large projects for a community require years of planning, having a reserve study in New Jersey can help the HOA board members get a complete overview of the estimated costs needed for them. Apart from that, reserve funds can also be used for unforeseen events like natural disasters.

Effects of Disturbance in the Supply Chain

Various parts make up the supply chain in the construction industry. From manufacturers to contractors, ensuring a smooth supply chain flow can help improve satisfaction and relationships within the industry. HOAs can also prevent prolonging the maintenance and repair efforts for the common areas within their jurisdiction.

However, the arrival of the COVID-19 pandemic has caused turmoil within the industry as it relies on global partners for building materials. About 30% of the supply of building materials in the US are imported from China. Lockdowns and strict border controls have led to clogged ports and a shortage in the workforce.

This mess will make it hard for HOAs to continue their ongoing or upcoming projects for the community, especially if they are due soon. The shortage in supply of essential materials will force HOAs to postpone the completion time of the projects as manufacturers are still trying to keep up with the rising demand nationwide.

Inflation and Reserve Fund

The supply chain chaos worldwide has made the prices of important construction materials skyrocket in the past few months. The uncertainty in demand has increased the input costs of raw materials needed to finish construction projects by more than 24% in the past year. The expenses required for essential construction items have continually surged since the beginning of the global health crisis. Additionally, they are expected to increase until next year.

This means that the estimated cost that HOAs will need on their projects is already outdated. If the maintenance or repair is due now or in the next few months, the allotted reserve fund might not cover the amount needed to complete the work. This will drag out the duration of the job and will shelve other future vital activities for the community.

Hiring a Structural Engineer

The lifespan and condition of common areas under the jurisdiction of the HOAs might not be affected by the supply chain and inflation issues, but the costs to properly maintain these areas are. As a result, obsolete NJ reserve study information might become problematic for the HOA board members and the residents.

By ordering another reserve study in NJ before the start of the project, engineers can help the HOA get a clear picture of the amount needed for the job. This can allow the HOA to plan accordingly and avoid scrambling for funds from various sources to fix the financial issues that might arise once the work starts.

Furthermore, HOAs can increase the standard of their reserve budget to prepare for unanticipated events in the future. Countless factors can impact all stages of the supply chain that will lead to inflation, and making the margin bigger can help the HOA adequately prepare for future projects.

Inflation and Supply Chain Disruption are Not a Temporary Problem

Though people might think that the current disarray in the supply chain and prices will resolve soon, experts anticipate that this might not be a short-term problem. The continuous dramatic shift in demand and other critical elements accelerated the present supply and price issues. Because of this, experts predict that inflation in the construction industry might peak in the first half of 2022.

Though securing a loan or increasing the HOA dues of the residents can help cover the additional cost, proper planning can go a long way when it comes to the reserve fund. Getting the help of engineers in New Jersey will significantly assist the HOA in analyzing the fund’s current state and arranging the budget standards for future goals.

Engineers at Lockatong Engineering can help prepare the reserve funds of the HOAs for their upcoming projects. Also, our engineers can ensure that the residential and commercial buildings are structurally sound and up to code. We offer a comprehensive property inspection, including a focused assessment of a single feature, evaluating a home’s current structure, phased inspections across the life of a construction venture, or structural design services for a renovation or addition.

Contact us today to schedule a reserve study with our professional New Jersey engineers.