Economist: Construction jobs, projects will increase
The chief economist for a national trade association told about 50 Grand Valley contractors Thursday he predicted area construction jobs and projects will increase during the coming year and that profit margins for builders will grow, but then cautioned he might be wrong.
Anirban Basu, chairman and CEO of Sage Policy Group in Baltimore, took the audience invited by the Associated Builders and Contractors on a whirlwind tour of the world, U.S. and Colorado economies, building with wit and precision the foundation for his forecast.
“We’re in for a year of growth,” Basu said, calling for a 2.4 percent to 2.6 percent increase in gross domestic product overall.
Provoking sighs and laughter, the Harvard-educated economist demonstrated at a rapid pace how the economies of most states were in recovery and that none were in recession or at risk of one for the first time in several years.
The economies of Colorado and about 10 other resource-rich states, especially North Dakota, are recovered fully and expanding, Basu said.
This is due largely to an increase in oil and natural gas production, which remains active in other parts of Colorado, and a slight rise in natural gas prices. A rebound in the sector is likely as natural gas and liquid natural gas exports increase, he said.
By 2035, the U.S. will be energy self-sufficient, the result of a massive increase in domestic production during the next 20 years, he said.
“If your economy has to be tied to one commodity, energy is a good one to be in,” Basu said of the region’s reliance on the industry.
As for construction, single-family and owner-occupied projects will see a very gradual increase, while multi-family and non-residential construction will grow at a much faster pace in the coming year, he said.
Single-family home construction is not expected to rise for several reasons:
Mortgages are very difficult for first-time buyers to obtain.
Move-up buyers, those seeking to buy a larger home, have been discouraged from buying by the recent winter weather.
“Now this winter was shockingly bad and it seemed to last forever … As a result, people spent a fortune on propane, heating oil, natural gas, electricity, and now the question is, don’t you want a bigger house?”
Perhaps the most pressing reason single-family home construction will grow more slowly is the current generation of young adults who have no interest in ownership, Basu said.
The younger generation aspire to be renters, instead of owners, based in part on the experience of their parents, who saw a massive loss of equity in their home investment during the last several years, he said.
“At some point, they will become home owners. When they have children — that changes everything.”
The renter mentality helps explain the big increase in multi-family residential construction that is underway in several cities, including Fort Collins, Colorado Springs and to some extent, Grand Junction. In Denver, the backlog for this type of construction extends out more than eight months and is climbing, he said.
Non-residential construction will also increase, he said, pointing to spending growth in several subsectors, especially lodging.
The nation saw a 44.8 percent growth in construction spending on hotels and casinos, prompted in part by the surge in casino construction across the country, he said.
The increase was only marginally less – 44.4 percent - in the communications subsector, where expanding broadband technologies require more data centers and the like to be built, Basu said.
The recent winter was hard on public roadways and other amenities, provoking a 15.2 percent increase in spending in that subsector, he said.
An 11 percent increase in spending on office space makes sense since professional and business services is the sector of the economy that has created the most jobs since 2008, Basu said.
Church building, however, saw the greatest decline in construction spending, down 4.1 percent, he said.
“God is down 4.1 percent, but he always comes back this time of year.”
The best news for builders over the past 18 months is that material costs have remained basically flat, increasing only 0.06 percent.
While gypsum, the main material in sheet rock, has increased due to residential construction, other materials like soft wood and ferrous metal are way down.
On the other hand, equipment isn’t getting any cheaper and skilled labor is getting harder to find since the construction trades do not appeal to many of the people entering the workforce today.