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Home>Business Resource Center >Industry Solutions >Construction

Every week, the media focuses on an ever-fluctuating builders market. From new home sales plummeting to lowered interest rates, bricks and mortar news never seems to wane. The articles below offer the most up-to-date headlines from around the industry.

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• Safety’s Role In The ’New Normal’ Of Construction
  

  With safety regulations changing, responsible contractors must have someone making sure safety programs and job sites are up to date.

  By Kathleen Garrity and Jennifer Richards

  When the local construction economy started to improve, everyone scrambled quickly to gear up again.

  But there is still a great deal of uncertainty, and backlogs aren’t always as deep as contractors would like. So instead of hiring many new employees, often contractors and their core employees are just working harder and longer. They hire only when projects demand new personnel.

  In addition, contractors need to have a low EMR with low premiums to be competitive with their bids because developers are looking for the highest value at the lowest price.

  With all this emphasis on cost in this new marketplace, how do contractors fulfill their safety needs? Contractors want to run safe jobs to protect their workers and stay in compliance with safety regulations. An injury is disruptive and demoralizing to the crew and costly to the employer for years because it affects EMR.

  How safety fits in

  With contractors needing to keep their staffing levels as low as possible, how does safety fit into today’s construction marketplace? It makes sense to have every employee stay focused on doing their work safely to bring the job in on time and on budget.

  With safety regulations changing, responsible contractors must have someone making sure safety programs and job sites are up to date. If the company is large enough, hiring a full-time safety director is always a good option, but that isn’t an option for many contractors.

  There are a number of safety consultant firms that can be hired on a retainer contract or on an as-needed basis. These are safety professionals who provide a wide range of valuable services, from updating safety programs in the office to doing job site inspections in the field.

  Another option would be to join an association that has safety personnel who are available to advise members. Often, associations with retrospective ratings programs have this service available. These groups often also provide safety seminars and other safety and workers’ compensation services for free or a reduced fee.

  Associations also provide safety roundtables and forums, as well as self-assessments tools, such as ABC’s Safety Training and Evaluation Process. Trade groups also have elite safety recognition programs such as the ABC Safety Alliance and AGC Safety Team.

  Recently, ABC launched a new program called Safety-on-Demand that provides safety consultant services at a reduced hourly rate.

  Safety Matters provides the services on a per-month contract with the more hours used in a month, the lower the hourly fee. As we talked to members while we were developing this new service, they all said this was a wonderful approach to their needs. With this program contractors may purchase as many hours as they need, based on their current work load, without committing to a specific contract requirement.

  Once in the program, members call Safety Matters to assist with developing a site-specific safety plan or conducting a safety and health inspection on one of their projects. They can also get assistance if there are accidents on a job. The association handles administration and billing so that the safety consultants can concentrate on what they do best — keep workers safe and contractors compliant.

  It has worked well for the contractors in the program. Erin VerHoeven, vice president and co-owner of Corstone Contractors LLC, signed up right away.

  “To be able to have a well-respected safety consultant help us with our safety needs and keep our costs down has been tremendously helpful. The market is so competitive we need to find savings wherever we can — and keep our workers safe.”

  L&I resources

  Another safety resource is the Department of Labor and Industries. Its website has a wide variety of information on industrial health and safety, from A (accident prevention plan) to W (workshops). The department’s consultation services will do a job site safety inspection without fear of getting a citation for an infraction.

  The consultation side of L&I doesn’t report on their findings to the compliance side, but there are compliance inspectors checking on job sites every day. Being out of compliance can be expensive and is always stressful and distracting. Check out www.lni.wa.gov/safety for more details.

  Regardless of which resources a contractor chooses to be safe, a key component to success is creating a culture of safety within the company so that all workers understand it is their personal responsibility to be safe and keep others safe every day on every job site. Everyone deserves a safe and healthy work place and getting employees to take responsibility is the key to achieving zero injuries.

  Kathleen Garrity has served as president of Associated Builders and Contractors of Western Washington since the chapter was founded in 1983. She sits on the state Prevailing Wage Advisory Committee and serves on the NAIOP Community Enhancement Committee. Jennifer Richards is principal of Safety Matters LLC. She has worked in the construction industry since 1987, beginning as a carpenter’s apprentice. She also serves on the board of the Construction Industry Training Council.

  Source: Seattle Daily Journal of Commerce, May 2, 3013 (http://www.djc.com)

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• National Association of Home Builders
  

  PRESS RELEASE

  Buoyed by rising home prices throughout much of the nation, both single-family and multifamily housing starts are expected to post double-digit gains over last year in 2013. However, headwinds continue to hold back even stronger growth as the housing recovery evolves, according to economists at NAHB’s Spring 2013 Construction Forecast Conference Webinar.

  “The broadening housing expansion is evidenced by the NAHB/First American Improving Markets Index, which now lists 273 metros areas out of a universe of 361, or three-quarters of the metropolitan areas in the U.S.,” said NAHB Chief Economist David Crowe.

  The recent surge is almost all due to improvements in house prices across a broader number of markets, he added. Home price increases became more solid and consistent in 2012, and the latest data shows a nearly 6 percent annual rate of home price appreciation on a national basis.

  Growth in the housing sector is rising at a much faster pace than the overall economy during this phase of the recovery, Crowe added. The residential fixed investment component of GDP was up 17.5 percent in the fourth quarter of 2012 whereas total economic output only registered a 0.4 percent gain.

  As demand for housing gradually picks up steam, supply chains for building materials, developed lots and skilled workers will take some time to re-establish themselves in the aftermath of the Great Recession.

  Meanwhile, builders are feeling pinched by rising costs of key building components (prices of gypsum, softwood lumber and concrete are all above 90 percent of their housing boom peak), which is causing home construction costs to rise at a faster pace than appraised values, Crowe said.

  Moreover, ongoing difficulties in obtaining construction credit, overly restrictive mortgage lending rules and uncertainty in Washington regarding the future of housing financial regulations and housing tax incentives, including the mortgage interest deduction and Low Income Housing Tax Credit, threaten to dampen consumer confidence and future housing demand.

  Setting the 2000 to 2003 period before the housing boom as a time of normal residential building production, Crowe said that residential remodeling has returned to previously normal levels of the early 2000s and that remodeling activity is expected to register a 2.2 percent gain this year over 2012.

  Meanwhile, NAHB’s Multifamily Production Index, a leading indicator for the multifamily market, has jumped 38 points in the past four years and now stands at 54. For the past three quarters, the index has been above the critical tipping point of 50, where a reading of 50 means that an equal number of builders view conditions in the multifamily market as good and bad.

  Multifamily starts are expected to rise to 334,000 units in 2013, up 35 percent from last year’s 247,000 level, bringing production back to the baseline level that is needed to keep the supply in balance with demand. Multifamily starts are anticipated to rise an additional 5 percent next year to 349,000 units.

  The single-family market, which must make up the most ground to return to its 2000-2003 level of normal production (1.3 million units), continues to make steady gains. NAHB is forecasting 672,000 single-family housing starts in 2013, up 23 percent from the 534,000 units recorded last year. Single-family production is expected to rise an additional 28 percent in 2014, to 858,000 units.

  Fed to the Rescue

  Taking a more bullish approach to the housing and economic recovery, Maury Harris, managing director and chief economist for the Americas for UBS, expects housing starts to total 1.1 million units this year (700,000 single-family and 400,000 multifamily) and 1.35 million units (900,000 single-family and 450,000 multifamily) in 2014.

  “My view is that monetary policy is more important than fiscal policy,” Harris said, noting that the sequester will cut about $85 billion in spending out of the economy this year while the Federal Reserve’s monetary expansion policy is pumping $85 billion into the economy every month.

  “As the Fed buys securities and pumps reserves into the banking system, this is easing lending standards and that will help job growth,” he added.

  Harris expects unemployment to fall to 7.5 percent at the end of this year and 6.7 percent at the end of 2014.

  With job formation a critical variable affecting household formation, Harris expects 1.1 million new households to form this year and an average of 1.3 million new household formations annually over the next three years.

  During the housing downturn, new household formations plummeted to 500,000 annually. As housing and the economy recover, there is a large pent-up demand for housing. Harris said that the household gap, which is the difference between potential and actual household formation, is about 2 percent of potential households or about 2 million.

  “The bottom line: we’re reasonably optimistic about the economy,” Harris said. “The public doesn’t sufficiently appreciate all the good that the Fed is doing.”

  Conditions Vary by State

  Now that the boom and bust carnage is over, a major development on the housing front is that housing markets are reconnecting to their underlying economies, according to Robert Denk, NAHB’s assistant vice president for forecasting and analysis.

  “The housing market is now being driven by local economic fundamentals,” said Denk. “Energy states and those driven by agricultural commodities are seeing their housing markets turn around the fastest.”

  California, Florida, Nevada and Arizona, which fell the farthest during the housing downturn, bottoming out at 10 to 20 percent of normal production, are showing progress in making a comeback. Home prices in many of these markets are returning to normal and near-normal levels, thanks in part to foreclosure rates that have eased significantly since hitting their peak in 2009.

  “While these former bubble states still have a long way to go to get back to normal, they have been replaced by the industrial Midwest, which is facing weakness in manufacturing, as the laggard in the recovery,” said Denk.

  Led by North Dakota, Texas, Oklahoma, Wyoming, Montana and Louisiana, the energy producing states are the first states projected to return to normal production levels by the end of next year, Denk said. Iowa, a farm belt state supported by agricultural commodities, is also approaching a faster return to normal conditions.

  In another way of looking at the long road back to normal, by the end of 2014, the top 20 percent of states will be at or above 87 percent of normal production, compared to the bottom 20 percent, which will still be below 60 percent.

  Source: NAHB News, April 24, 2013 (http://www.nahb.org)

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• Large Companies Have Grown Faster Than Small Ones
  

  By Peter Coy

  Small businesses account for the lion’s share of job growth, right? Well, not always. Since the U.S. economic recovery began in June 2009, big employers have increased employment 7.5 percent, while small employers have boosted payrolls by only 4.9 percent.

  Those figures are calculated from data released today in the ADP National Employment Report, which also contains the disappointing news that private payrolls increased by a less-than-expected 158,000 in March.

  I spoke to Mark Zandi, chief economist of Moody’s Analytics, about the big-vs.-small issue. Moody’s (MCO) partners with the ADP Research Institute (ADP) on the monthly jobs report, which comes out just before the official government jobs report.

  Zandi had three explanations for why large employers (1,000 employees and up) grew faster than small ones (fewer than 50 workers).

  First, he said, construction companies got killed by the housing bust. Many of them are very small.

  Second, there was a serious credit crunch that lasted beyond the end of the 2007-09 recession. Big companies had more cash on hand to weather it, and later on they were able to borrow in the bond market while bank lending was still constricted. “They’ve been feasting on these low interest rates. The small guys are only now getting credit.”

  Third, “the big guys have been more internationally focused” and have managed to capture global market share. A decline in the value of the dollar helped by making American goods more competitive.

  Over the past year, the pendulum has swung back toward the middle. From February to March, small companies grew a tad faster than big companies, according to the ADP data. Zandi says that may be a result of a global economic slowdown, plus easier credit conditions for small biz in the U.S.

  The Bureau of Labor Statistics inflates the number of small businesses in the U.S. because it counts each establishment as a separate business. ADP, the Roseland (N.J.) payroll services company, uses its knowledge of its clients to assign establishments to their parent companies.

  Source: BloombergBusinessweek.com, April 3, 2012 (http://www.businessweek.com)

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• El Paso Construction Spending Set to Outpace Nat’l Rate
  

  By Vic Kolenc, El Paso Times, Texas

  The nation’s construction industry is gradually rebounding from the recession, and El Paso construction spending should grow this year more than the projected 5 percent to 10 percent national growth rate, an economist for the Associated General Contractors of America said in El Paso on Tuesday.

  “I am upbeat but not exuberant about the construction industry here,” Ken Simonson, chief economist for Associated General Contractors of America, or AGC, said after presenting his national construction industry outlook to local contractors Tuesday at a breakfast.

  El Paso’s good economy, expected growth in warehousing and other services tied to manufacturing in Mexico, the coming construction of a new hospital at Fort Bliss, and other ongoing public and private projects should boost the El Paso construction industry, Simonson said.

  “The big question is what will happen at Fort Bliss,” Simonson said. The military is downsizing, and overall federal construction spending is declining due to federal budget cuts, he said.

  Construction of the new William Beaumont Army Medical Center, which is to cost $649 million to build under a winning bid by a partnership of two national contractors, should create work for subcontractors and others, Simonson said. However, the project is being delayed pending the outcome of a bid protest by competitors.

  Omar Veliz, president of the AGC’s El Paso chapter and founder of Veliz Construction, a 3-year-old El Paso general contractor, said he agrees with the AGC economist’s positive outlook.

  “I think El Paso’s construction industry has some bright spots, but also some challenges,” Veliz said. A lot of outside companies came to El Paso to work on the now almost-completed multibillion-dollar Fort Bliss post expansion, and that left local companies out, Veliz noted. He doesn’t want to see the same happen with the new Army hospital project, Veliz said.

  Other projects are coming up, including the Downtown baseball stadium, and construction of clinics for University Medical Center of El Paso, Veliz noted. A further boost could come if the federal government allows public-private partnerships to do international bridge and other border infrastructure projects, he added.

  Simonson said the nation’s construction industry is “still below levels of the last decade, but is gradually coming back.”

  Construction accounted for about 5 percent of the nation’s economic output at the industry’s peak in 2006, and is now down to 3 percent, he said.

  Total construction spending nationwide, including housing construction, should grow 5 percent to 10 percent this year and the next four years, Simonson forecast. Total construction spending grew 10 percent last year, he reported.

  Private nonresidential construction spending, not including government-funded projects, is projected to grow 10 percent to 15 percent this year, compared with 18 percent last year, Simonson said.

  “We are going to have population growth and economic growth (in the next few years), and those are the fundamentals of the construction industry over the long haul,” Simonson told his small breakfast audience at the Federal Reserve Bank of Dallas’ El Paso branch.

  “We’ll have upper single-digit growth in (construction) spending (in the next four years), but that will be less than the last decade,” he said.

  Single-family home construction, office and retail store construction will be less than in the past, Simonson predicted. Public construction funding will be flat to declining during the next several years, he said.

  The booming oil and gas industry, and the warehousing industry should be construction growth areas, he said.

  Total nonresidential construction spending, including public projects, was $572 billion last year.

  Simonson projects costs of construction materials will rise 2 percent to 4 percent this year -- more than last year’s 1.3 percent increase, but less than the 5 percent increases in both 2010 and 2011. Construction labor costs are projected to increase 2 percent to 4 percent this year as companies try to lure workers back to the industry, he said. Project bid prices are projected to rise 2 to 5 percent this year, he said.

  “A lot of people have left construction (during the recession) either for other jobs, for school, or retirement, or dropped out of the workforce or have went back across the border,” Simonson said. “While we still have a high unemployment rate (15.7 percent in February for the construction industry), increasingly we’re going to have trouble finding workers.”

  Source: HispanicBusiness.com, March 27, 2013 (http://www.hispanicbusiness.com)

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• MONEY: Construction Starts With Building Trust
  

  By Eric Petermann

  SIERRA VISTA — The overriding guiding business principle for Doug Ring is honesty. That quickly becomes clear when he shakes your hand and looks you squarely in the eye.

  As a local contractor for 20 years, the lesson of being honest with his customers has helped him shape his business in a profession that can have a dark side.

  Husbands 2 Go in Sierra Vista takes on construction jobs of all sizes, but in the current economy, Ring emphasizes that the focus has become small jobs.

  “Homeowners are looking at fixing things, rather than spending money on new stuff,” Ring said. “Our prices are not the cheapest, and not the most expensive — we’re about in the middle.”

  The federally-trademarked “Husbands 2 Go,” began several years ago in California and Oregon, and encountered impressive success. The company continues to grow, and has a goal of expanding to every city in the United States. Ring said investors in that dream are always welcome.

  “Our company is different than most because I care about the finished product,” Ring said. “It really doesn’t matter how big or small the job it, because they’re all important to us.”

  Establishing a trust relationship is the first step for Ring and his company when he’s approached about a construction job.

  “I don’t like ‘go-backs,” Ring said. “We make sure we explain the process to the homeowner prior to starting a project, and if we’ve never done the work, then we’re going to refer it to another specialized contractor.”

  Unlike some firms that require substantial payment before the work begins, Ring said he prefers installment payments on big jobs.

  “I’ve heard a lot from homeowners that the contractor took all the money up front and never came back to finish the job,” said Ring. “We’re not going to do that.”

  Like the craftsman from another, earlier era in the construction business, Husbands 2 Go has built a successful and unique business by establishing its reputation first.

  “We pride ourselves on quality, satisfaction, honesty, and reliability. We are the best because we are honest,” Ring said.

  SOURCE: The Sierra Vista Herald, Arizona, March 11, 2013 (http://www.svherald.com)

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• Jump in Housing Starts Fuels Rise in Construction
  

  Spending on new residential projects reached $5.1 billion last year, accounting for almost a third of the total of $16.1 billion in new construction starts.

  By Matt Chaban

  The construction industry is beginning to feel the good effects of the slow but steady recovery in the city’s housing market. Spending on new residential construction jumped 54% in 2012 from the prior year and has more than doubled since 2010, according to an annual report of construction spending from the New York Building Congress. That led to an overall expansion of 5% for the design and construction industry in 2012.

  Residential starts, or spending on new projects, reached $5.1 billion last year, accounting for 32% of the total of $16.1 billion in new construction starts. In 2011, new housing development accounted for only $3.3 billion. Still, housing remains well below the peak. It is also below 2008 levels, when the bottom began to fall out of the market. Even then, spending was at $5.9 billion.

  “It’s still well below the peak of the market, when the city was building in excess of 30,000 units a year for five years,” Richard Anderson, president of the Building Congress, said. But he noted it is also considerably better than the doldrums of 2009, when there were only 6,000 new residential starts.

  “The market’s been climbing back, and we could be as high as 15,000 units this year, which would still be half of the peak years,” Mr. Anderson said. “But it’s a nice increase, if you look at it the other way, that figure would be almost 200% of the bottom year.”

  This is but the latest sign of a housing market recovery in the city, another being a rise in hiring by residential brokerages in the city.

  The rest of the construction market is fairing less well, however.

  Public works remains an important source of work for the design and construction trades in the city, but it has fallen through the recession and since, hitting $2.1 billion in starts last year, down from $2.4 billion in 2011 and from $5.7 billion in 2008. Commercial construction is also contracting, falling 7% last year, to $8.9 billion, down from $9.6 billion in 2011.

  “The economy is not generating a lot of jobs, which is bad for commercial development, and, on top of that, businesses are figuring out how to operate within smaller and older spaces,” Mr. Anderson said. “Out of some 20 office projects my members have on the boards, only two, Hudson Yards and Brookfield’s West Side project are rising.”

  Still, two of the three largest new projects last year, including the biggest, were commercial developments: the $400 million renovation of Macy’s Herald Square and the $250 million renovation of the Winter Garden and shops at the World Financial Center downtown. The second biggest was a $325 million project to build entrances for the Second Avenue Subway at East 96th Street.

  Even if it may not account for the biggest ticket projects, residential development looks like it will remain the core of new work for the industry for the foreseeable future, Mr. Anderson said.

  “When people build residential units, they express confidence in the city of New York, because people have to come in and buy these units and rent these units,” he said.

  Unevenness in the market may not be a bad thing, either.

  “This is, to me, a strong market, and a rather typical market,” Mr. Anderson said. “Five, six years ago, we were clicking on all cylinders. Now, we’re back to normal, which is a market where certain sectors are stronger than others.”

  Source: Crain’s New York Business, February 12, 2013 (http://www.crainsnewyork.com)

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