Education construction hyper-boom about to end

Education construction activity expanded at an 18% annual pace over the last five quarters, but growth is expected to drop to a 5-6% pace through 2009.

Reed Construction Data reports that the value of starts fell significantly in the fall after a record high summer. Driving the slowdown are much tighter budgets, slimmer (but still above-average) budget reserves, and steep declines in state tax collections in states hard hit by the housing collapse.

Overall, education construction spending was 19% higher in October than at the same time a year earlier, with spending up 31% over the last year for K-5 buildings, 22% for middle schools, 10% for high schools, and 21% for highered facilities. Over the same period, project cost increases varied from 2-3% for smaller K-5 facilities to more than 5% for complex high school and college buildings.

In 2008, spending for higher education facilities will hold up because it derives from sales, income taxes, and investment earnings, whereas K-12 funding is heavily dependent on property taxes, which are becoming depressed by falling building asset values and rising tax delinquencies.

In some states, school and college construction is significantly out of line with population. In Massachusetts, Connecticut, and New York, for example, construction is very high relative to population.

The depressed economies of Michigan and Oklahoma are causing education spending to remain relatively low. And in Texas, Arizona, and Nevada, school construction is not keeping pace with expanding populations.