After some ups and downs, the construction business is on the rise again.
The construction industry has seen some ups and downs over the past decade, but experts say it's once again on the rise. The influences of millennials becoming parents, a proposed infrastructure program, and some previous government programs taking effect have all led to an increase of demand, especially in residential and infrastructural building. However, increased prices and a decreased skilled labor force continue to challenge profits.
The construction industry saw over $1.7 trillion in revenue in 2016, per statistics by the U.S. Census Bureau. There were 729,345 construction companies employing over 7.3 million people. Of those companies, 477,950 were specialty trade contractors, 211,956 were building construction companies, and 39,439 were involved in heavy or civil engineering construction.
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After a long slump, the industry started to rise in late 2016, and experts expect it to continue in 2017. In fact, the Dodge Data & Analytics survey predicts a 5 percent growth in construction startups. Other data-gathering groups, like Associated Builders and Contractors (ABC) and the National Association of Home Builders (NAHB), have different estimations, but all agree that the construction industry should improve in 2017 and 2018.
Predicted Growth by Industry
Of course, growth varies by specific type of construction. Here's a breakdown:
- Residential: Single-family homes should again see an increased demand. NAHB predicts 870,000 units, while Dodge says 795,000. Either way, it represents a double-digit growth. Meanwhile, multifamily projects, after fast growth in 2016, will decline once current projects are finished.
- Commercial and retail: Dodge predicts a 6 percent increase, though other sources are more cautious, citing tightening of lending standards. Actual retail locations may see a decline with the rise of online spending, but that is counterbalanced by a subsequent need for warehouses and distribution centers as well as data centers that support online stores. Office space is also showing increased demand.
- Institutional: Dodge predicts a 10 percent increase for institutional construction in general, which includes schools, sports arenas, casinos and transportation terminals. Hotels, however, will see a steady decline.
There's some disagreement about the future of new school construction. Some say an increasingly urban population has decreased the need for new school buildings, and as colleges get more expensive, they will have fewer students and less need to expand. Others point to millennials having families and moving to the suburbs, which need new schools to accommodate their kids. A potential rise in endorsements and business-college partnerships may mean more revenue for buildings devoted to research. Hospital construction will most likely decline, at least until the nation is more sure about the direction health care will take.
- Infrastructure and civil construction: Experts expect this area to grow. Public-private partnerships have spurred the growth of office buildings. Public works may increase as much as 6 percent thanks to the Federal Transportation Bill and the Water Resources Development Acts that went into effect. Utilities and gas plant construction will most likely fall by 26 percent or more as current projects complete.
If Trump's $1 trillion infrastructure plan goes into effect, infrastructure construction will continue to rise, but that probably won't happen until 2018. President Trump has begun planning discussions, but has also said health care and tax reforms take priority.
- Sustainable energies: President Trump has vowed to cut government subsidies to this area, but the industry is moving toward promoting green construction for cost savings. If it succeeds, it may become a more integral part of other construction.
Increased Price for Materials and Employment Challenge the Industry
The biggest challenges of 2017 will be an increase in input prices and finding skilled labor.
Input prices are affected by the global economy and increased demand.
The ABC has seen a small but continuous growth in prices across the board. Much of it has had to do with the increase in crude oil prices, but there’s also been an increase in the prices of materials from cement to steel. (To keep up on month-to-month statistics on this, check out the ABC website.)
Lumber may increase in price as well this year. The 2006 Softwood Lumber Agreement between the U.S. and Canada expired in October 2015, and the one-year standstill period ended last year. As a result, price increases due to tariffs may be seen as early as April.
Finally, the $1 trillion infrastructure plan that will bring an increase in contracts also brings an increase in demand for supplies, which can drive up the price.
A shortage of skilled labor puts pressure on the industry.
A 2016 Associated General Contractors (AGC) survey showed that two-thirds of its members had trouble filling at least one craft position, and half were hard-pressed to find supervisors or project managers. Construction employment is rising at double the growth rate of the overall economy, yet positions are taking longer to fill. This can result in project delays.
It also means higher wages to attract skilled workers. The average construction worker earns $28 an hour. The increase in the price of health care and the increased need to train workers has also added to construction costs.
2017 and Beyond: The Future of the Construction Industry
As prices increase and skilled labor becomes more scarce, construction companies will turn to cost-saving measures. Contractors are turning to more cooperative measures, like public-private construction. Design-build companies and integrated project delivery models reduce prices by removing third parties from the process. Some companies are turning to modular materials as a cost-saving measure as well.
To tackle the skilled-labor issue, some companies are working closely with high school and community colleges to develop a more skilled worker base. Internships and other programs not only benefit the student, but give the company a chance to train potential employees at reduced expense.
It's still in the future for most companies because of expense, but there's a growing interest in using internet technologies such as wearables, virtual reality and drones. Already, some companies equip employees with wearable devices to monitor their activities, use drones to survey sites, and have augmented reality goggles for conducting inspections. Virtual reality is being explored for training as well as site inspections.
Increases in input prices and a shortage of skilled labor present big challenges for construction companies, and some owners have expressed concern about its growth in the coming year. However, analysis by expert associations indicates that the industry should improve as a whole in 2017. A renewed need for homes and entertainment as well as infrastructure will open opportunities. Meanwhile, cooperative programs and technologies are being explored for cutting costs and bringing up a new generation of construction workers.