The relatively steep slowdown in the growth in construction spending in recent years might suggest that this year might result in a decline in overall spending. However, quite the contrary, the AIA Consensus Construction Forecast panel is projecting a modest pick-up in the growth rate, and another solid performance in 2019. There appear to be several factors behind this optimism:
1. Rebuilding and repairs from natural disasters: The National Oceanographic and Atmospheric Administration recently reported its 2017 estimate of losses from major natural disasters like hurricanes, wildfires, and flooding. At $306 billion, it easily shattered the previous record of $215 billion (adjusted for inflation) set in 2005 from the impacts of Katrina, Rita, Wilma, and Dennis. While the totality of these loss figures won’t be directly translated into rebuilding and repair activity, they will produce significant opportunities for the construction sector. Existing research suggests that the duration of rebuilding activity after natural disasters is significant, with the peak in spending generally occurring two to three years after the event.
2. Tax reform implications for construction: The recently enacted tax reform package dramatically reduced the nominal tax rates for businesses, and some of these savings will likely be reinvested back into the businesses. With capital expenditures able to be expensed rather than depreciated under the tax act, businesses have even more incentive to invest in their businesses. The impact of tax reform on business profitability will vary by industry, with more capital intensive industries (e.g. utilities, real estate, and transportation) and those with higher effective tax rates (e.g. agriculture, financial services) potentially benefiting the most. In contrast, the single-family housing market recovery is likely to be slowed by the tax package. The lower limits for the deductibility of mortgage interest, as well as the cap set on state and local tax deductions (including property taxes) reduce the tax preferences for homeownership, and likely will moderate growth in house prices, particularly for upper-end homes in areas with high state and local tax rates.
3. Possibility of an infrastructure package: A priority of the Trump administration has been an infrastructure investment program. There have been several versions floated, with the current iteration calling for a $200-billion federal investment over the coming decade leveraging and additional $800 billion in state, local, and private investment. The details of such a program, and the likelihood of its being implemented, should unfold over the coming weeks.
4. Strong consumer and business confidence levels: Consumer sentiment—as measured by the University of Michigan consumer sentiment index—turned up in the latter part of 2017, with fourth-quarter figures at their highest levels in almost two decades. Likewise, business confidence levels in 2017, as measured by the Conference Board’s CEO business confidence survey, were at their highest point since before the last recession. These indicators suggest broad confidence in economic conditions across both households and businesses, and a willingness to spend and invest.
5. Leading economic indicators for the construction sector: While there are several “special circumstances” that may provide growth opportunities for the construction sector this year, there are other more basic indicators that point to growth. AIA’s ABI has been signaling growth in design activity for most of the past year, which would point to a comparable upturn in construction activity throughout 2018. Even more significant, the AIA’s index for new design projects coming into architecture firms saw an even sharper upturn than the overall ABI in 2017, demonstrating a growing pipeline for design activity. Additionally, both Dodge Data and Analytics and ConstructConnect reported strong gains in nonresidential building starts in 2017, demonstrating considerable building activity currently under way.
Related Stories
Affordable Housing | Apr 1, 2024
Chicago voters nix ‘mansion tax’ to fund efforts to reduce homelessness
Chicago voters in March rejected a proposed “mansion tax” that would have funded efforts to reduce homelessness in the city.
Standards | Apr 1, 2024
New technical bulletin covers window opening control devices
A new technical bulletin clarifies the definition of a window opening control device (WOCD) to promote greater understanding of the role of WOCDs and provide an understanding of a WOCD’s function.
Adaptive Reuse | Mar 30, 2024
Hotel vs. office: Different challenges in commercial to residential conversions
In the midst of a national housing shortage, developers are examining the viability of commercial to residential conversions as a solution to both problems.
Sustainability | Mar 29, 2024
Demystifying carbon offsets vs direct reductions
Chris Forney, Principal, Brightworks Sustainability, and Rob Atkinson, Senior Project Manager, IA Interior Architects, share the misconceptions about carbon offsets and identify opportunities for realizing a carbon-neutral building portfolio.
Reconstruction & Renovation | Mar 28, 2024
Longwood Gardens reimagines its horticulture experience with 17-acre conservatory
Longwood Gardens announced this week that Longwood Reimagined: A New Garden Experience, the most ambitious revitalization in a century of America’s greatest center for horticultural display, will open to the public on November 22, 2024.
Office Buildings | Mar 27, 2024
A new Singapore office campus inaugurates the Jurong Innovation District, a business park located in a tropical rainforest
Surbana Jurong, an urban, infrastructure and managed services consulting firm, recently opened its new headquarters in Singapore. Surbana Jurong Campus inaugurates the Jurong Innovation District, a business park set in a tropical rainforest.
Cultural Facilities | Mar 27, 2024
Kansas City’s new Sobela Ocean Aquarium home to nearly 8,000 animals in 34 habitats
Kansas City’s new Sobela Ocean Aquarium is a world-class facility home to nearly 8,000 animals in 34 habitats ranging from small tanks to a giant 400,000-gallon shark tank.
Market Data | Mar 26, 2024
Architecture firm billings see modest easing in February
Architecture firm billings continued to decline in February, with an AIA/Deltek Architecture Billings Index (ABI) score of 49.5 for the month. However, February’s score marks the most modest easing in billings since July 2023 and suggests that the recent slowdown may be receding.
Cultural Facilities | Mar 26, 2024
Renovation restores century-old Brooklyn Paramount Theater to its original use
The renovation of the iconic Brooklyn Paramount Theater restored the building to its original purpose as a movie theater and music performance venue. Long Island University had acquired the venue in the 1960s and repurposed it as the school’s basketball court.
Adaptive Reuse | Mar 26, 2024
Adaptive Reuse Scorecard released to help developers assess project viability
Lamar Johnson Collaborative announced the debut of the firm’s Adaptive Reuse Scorecard, a proprietary methodology to quickly analyze the viability of converting buildings to other uses.
