MORE DEMAND, SAME SUPPLY, DRIVES UP PRICES

Now that we are seeing a recovery in the residential market, with the commercial market predicted to get stronger over time, another of the laws of supply and demand should apply: If demand increases and supply remains unchanged, a shortage occurs, leading to a higher equilibrium price.

FEWER CONTRACTORS MEANS EVEN LESS SUPPLY

Although many contractors survived the economic downturn, others went out of business or had to cut back on their staffing. That indicates less supply. So, again, that should push up prices.

As the economy continues to grow — albeit slowly — demand for HVAC service and replacement will get stronger. Service and replacement work that was put off will have to get done at some point because breakdowns will certainly come. The new construction market likewise has to get stronger as more homes are built.

HVAC is here to stay, and HVAC service and replacement is inevitable. No one is going to throw out their heating and cooling system because it costs too much to maintain. Homeowners and businesses are going to pay for HVAC service and replacement, and it’s going to be a matter of “pay me now or pay me later.” They can’t call an ultra-low-priced contractor from overseas to fly in and handle the job. And HVAC equipment is too complex for the DIY market to be a serious threat.

A growing economy and increasing demand will drive up prices. That will mean more work and increased profitably for contractors. That should likewise drive up demand for installers and technicians, and drive up wages. Increasingly attractive wages should draw more students into the field as well as attract more people into switching careers.

HVAC IS AN ESSENTIAL SERVICE

As suggested above, HVAC has become a necessity. The South boomed because of it, and it has deep roots in the rest of the country as well. It’s an essential service that can’t be outsourced overseas. Local contractors must provide the service. And the laws of supply and demand indicate that an increasingly larger demand coupled with a diminished supply of service providers will drive prices higher and higher, drive more employment opportunities at contracting firms, and drive more competition for employees. That likewise has to drive increased wages.

At some point, many of those white-collar clerks making low wages will start to recognize the benefit in becoming a blue-collar technician making significantly higher wages — with an upward career path and the potential to start their own HVAC contracting business once they learn the trade. And they’ll see an HVAC industry that has become increasingly high-tech with the use of electronic instruments and smartphones, tablets, and apps.

My argument is that a constriction in the supply of HVAC services is more likely to lead to the changes needed to meet the demand, rather than serious trouble and catastrophic damage to the HVAC industry. And if contractors cannot step up to meet the demand, some other entity such as utilities will see the opportunity and will step in and seize it.

Publication date: 9/7/2015

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