As the year has progressed into its second month, cold weather and snowy conditions all over the country, even deep into the south, has created speed bumps for the construction industry.
Despite that, the Dodge Momentum Index rose 3 percent in January compared to the previous month, according to McGraw H ill Construction, a division of McGraw Hill Financial. The Momentum Index is a monthly measure of the first (or initial) report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year.
January’s relatively strong gain brought the Momentum Index to 121.1 (2000=100), compared to a revised 117.6 in December 2013. Save for two minor dips in June and October of 2013, the Momentum Index has been on a steady climb for more than a year. As the environment for new nonresidential development continues to improve, the planning pipeline of nonresidential building projects has grown more active.
The latest month’s increase for the Momentum Index was driven by strength for its commercial building segment, while plans for institutional building held steady with December. Commercial building plans gained 5.7 percent, largely the result of increased planning activity for office and hotel development.
The largest commercial projects to enter the planning pipeline in January were a $275 million St. Regis Hotel in Napa, Calif., a $200 million Renaissance Hotel at LA Live in Los Angeles, and a $120 million mixed-use development in Mountain View, Calif. January’s stability for institutional building was aided by several large projects, including plans for further expansion of the San Ysidro Border Station in San Diego.
Due largely to previously mentioned severe weather,across much of the nation, housing starts fell 16 percent to a seasonally adjusted annual rate of 880,000 units in January, according to newly released figures from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. Meanwhile, single-family permits, which are often a harbinger of future building activity, posted a modest 1.3 percent decline to a seasonally adjusted annual pace of 602,000 units.
“Cold weather clearly put a chill on new home construction last month and this is also re ected in our latest builder confidence survey,” said Kevin Kelly, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Wilmington, Del. “Further, builders continue to face other obstacles, including rising materials prices and a lack of buildable lots and labor.”
“Though the decline in starts is largely weather related, it is worth noting that on the upside housing production for the fourth quarter was above 1 million for the first time since 2008 while single-family permits held relatively steady,” said NAHB Chief Economist David Crowe. “The less weather sensitive permits data suggests that our forecast for solid growth in singlefamily housing production in 2014 remains on track, as pent-up housing demand is unleashed.”
In January, single-family housing starts posted a 15.9 percent decline to 573,000 units while multifamily production fell 16.3 percent to 307,000 units. Regionally, single-family starts activity rose 10.7 percent in the West and 2 percent in the Northeast and fell 13.8 percent in the South and 60.3 percent in the Midwest.
Overall permit activity fell 5.4 percent to 937,000 units in January. The decline was due primarily to a pullback in buildings with five units or more, where permits fell 13 percent to 309,000 units. Regionally, overall permit issuance was down 10.3 percent in the Northeast and 26 percent in the West, but rose 8.6 percent in the Midwest and 3.4 percent in the South.
Strong demand for apartments will increase over the next several years, said panelists during a press conference at the National Association of Home Builders (NAHB) International Builders’ Show (IBS) in Las Vegas. And while multifamily construction continues to be strong, NAHB does expect the speed to decrease as sustainable levels are reached in 2015 or 2016. “The multifamily market has rebounded significantly from its trough in 2009 at 82,000 multifamily housing starts to 340,000 in 2013,” said Crowe. “NAHB is forecasting 363,000 multifamily housing starts in 2015, which is above the previous longer term average of 340,000 as more young adults prefer renting.” The strong performance in multifamily comes from three sources, explained Crowe. “First, during the collapse, production of multifamily housing had significantly decreased, so part of the resurgence in 2011 was just catching up with a more normal flow. Second, the strong demand for apartments is being fed by a rising demographic of echo boomers that will continue to grow in size as we absorb people born after 1980. Third, young adults who might have otherwise chosen homeownership, and some older adults as well, are hampered by a variety of issues, such as unusually tight underwriting standards for mortgages, lower credit scores because of the slow employment market and lower entry salaries. As a result, the share of households that rent rather than own has increased steadily since 2004 and will likely continue until jobs are more secure, mortgages more accessible and careers more stable.”
Many markets have regained their footing and are producing at least as many multifamily units as they did during the relatively stable period between 1996 and 2006. “The multifamily market has come a long way since the collapse,” said panelist Guy K. Hays, president of Legacy Partners Residential Inc. in Foster City, Calif. “Overall, supply and demand are in balance, and in most markets there is a need for the continued production of new units.”
While both panelists are optimistic about the future of the multifamily housing market, there are still challenges that face the industry such as the availability of labor and rising cost of some building materials. But demand for apartments is strong enough for developers to proceed in most markets, the panelists noted.
Construction Jobs and Employment
Construction employment expanded in 192 metro areas, declined in 84 and was stagnant in 63 between December 2012 and December 2013, according to a new analysis of federal employment data released Feb. 5 by the Associated General Contractors of America. Association officials said that even with so many metro areas adding jobs for the year, only 20 metro areas topped previous construction employment peaks for the month.
“Growing demand for apartment and single-family construction was behind a lot of the growth in most metro areas last year,” said Ken Simonson, the association’s chief economist, noting that private residential construction spending soared by 18 percent from December 2012 to December 2013, while public sector spending slipped by 1 percent. “Employment in December 2013 was held down in many areas by unusually snowy or cold weather. With the weather and the economy both likely to improve soon, even more metros should post employment gains in the coming months.”
Santa Ana-Anaheim-Irvine, Calif., added the largest number of construction jobs in the past year (11,200 jobs, 15 percent); followed by Atlanta-Sandy Springs- Marietta, Ga. (8,400 jobs, 10 percent); San Diego- Carlsbad-San Marcos, Calif. (5,700 jobs, 10 percent) and Tampa-St. Petersburg-Clearwater, Fla. (5,700 jobs, 11 percent). The largest percentage gains occurred in Steubenville-Weirton, Ohio-W.V. (31 percent, 500 jobs); Lake Charles, La. (28 percent, 2,700 jobs) and Fargo, N.D.-Minn. (25 percent, 1,800 jobs).
The largest job losses from December 2012 to December 2013 were in Las Vegas-Paradise, Nev. (-3,300 jobs, -8 percent); followed by Edison-New Brunswick, N.J. (-3,200 jobs, -9 percent); Cincinnati- Middletown, Ohio-Ky. (-2,900 jobs, -8 percent) and Gary, Ind. (-2,800 jobs, -15 percent). The largest percentage decline for the past year was in Modesto, Calif. (-29 percent, -1,900 jobs); Gary, Ind.; Visalia- Porterville, Calif. (-13 percent, -500 jobs); Anniston- Oxford, Ala. (-11 percent, -100 jobs); Mobile, Ala. (-11percent, -1,300 jobs) and Rockford, Ill. (-11 percent, -400 jobs).
Fargo, N.D.-Minn. experienced the largest percentage increase among the 20 cities that hit a new December construction employment high from the prior December peak (25 percent higher than in 2012). Corpus Christi, Texas, added the most jobs since reaching its prior December peak in 2012 (3,900 jobs). Phoenix-Mesa- Glendale, Ariz., experienced the largest drop in total construction employment compared to its December 2006 peak (-81,300 jobs) while Lake Havasu City- Kingman, Ariz., experienced the largest percentage decline compared to its December 2005 peak (-76 percent).
Association officials urged Congress to act quickly to finalize water resources legislation that sets funding for port and waterways improvements. They noted that versions of the legislation have passed both houses of Congress and just need to be finalized and sent to the president. And they also urged Washington officials to pass a new six-year surface transportation bill before the current measure expires at the end of September. “Congress has a real opportunity to help boost construction employment in many metro areas this year, and get aging infrastructure repaired at the same time,” said Stephen E. Sandherr, the association’s chief executive officer.