Colorado Real Estate Journal - NOVEMBER 3-16, 2021
Put-in-place construction revenue in the U.S. is forecasted to nearly eclipse $1.6 trillion in 2021, which is another record year. The U.S. had not seen a dip in construction revenue in over a decade, and if estimates hold, construction revenue will be up 8.9%, the fastest growth rate since the U.S. Census Bureau has started publishing such data in 2003. Despite this continuing bull run, the industry is not without volatility. It is the best of times and it is the worst of times. The residential sector, which is by far the largest of the 17 construction sectors reported by the Census Bureau, continues its torrid pace from 2020 and is up nearly 24% through August, after being up nearly 21% in 2020 – both are record growth years for the residential sector since 2003, even beyond that of the residential boom turned bubble of the 2000s, which was fueled by subprime mortgages. This recent surge in spending, coupled with COVID- 19-caused supply chain issues, have resulted in extreme inflationary pressure for both residential costs and overall construction costs. To the contrary, the majority of the 16 nonresidential construction sectors have realized negative growth for the past 18 months. Nonresidential construction spending was down by approximately 5% in 2020 and is down another 3% this year. This compression is predominately caused by pandemic disruptions and a lack of public construction spending. In fact, if the numbers for 2021 hold, it will be one of the worst growth years for public construction spending since the Census Bureau has recorded data. The light at the end of the tunnel for nonresidential sectors is that AIA and Dodge data note that significant planning is underway for nonresidential work, and this shift should be evident in 2022 numbers. In terms of public vs. private construction spending, the private sector is being carried by residential construction – it is up 13%, while the public sector is down by 4% because of a lack of public construction spending. The public construction industry is very much awaiting House passage of the federal infrastructure plan, which was passed by the Senate in August. Public construction will continue its lag until this ostensibly “nonpartisan” bill works its way through Congress, which is easier said than done. Political pundits speculate that the earliest that this will happen is December. Like just about all other industries, construction is suffering from a lack of workers. In 2006, the Bureau of Labor Statistics noted that the construction workforce was over 7.7 million. Today, even though construction revenue has grown from $1.1 trillion in 2007 to $1.6 trillion in 2021, the workforce is down to 7.4 million. The unemployment rate for construction workers is 4.5%, and the industry continues to have hundreds of thousands of unfilled job openings. Much of the workforce has shifted to fill the demands of the residential industry, and that might create a dearth of workers for nonresidential construction when these sectors ramp back up, which will likely be in 2022. The Producer Price Index for Construction Materials, which is a measure of inflation for the construction industry, has jumped through the roof since the first quarter of 2020. The graph from the Federal Reserve Economic Data denotes this steep and unprecedented rise. While inflation related to certain construction materials, like lumber, has shown to be partially transitory, overall, a significant portion of the increase appears permanent. The average hourly wage for construction workers has risen from $32.09 in 2020 to $33.25 in 2021, a 3.6% increase. For the past 10 years, the average year-overyear wage increase has been 2.7%, so this represents a 33% increase from the norm. In sum, the residential construction boom continues while nonresidential construction continues to lag. This script likely will flip over the next 12 months, which will be a welcome breather for residential-driven inflation and a nice boost for languishing nonresidential/public construction sectors.