Signs point to decreased construction activity in coming months as financing costs for many developers have become prohibitively high, sources told Construction Dive. For example, increased interest rates are making construction projects more risky and less profitable, said Nicolas McNamara, director of project management at CBRE, a Dallas-based commercial real estate services firm.“ Increased financing costs remain a concern around construction.” said McNamara. “Developers are challenged with projects that simply are not penciling due to increased rates.” Recent uncertainty in the banking industry is compounding that issue for construction firms, he said. The impacts of those headwinds are already visible. Construction backlog decreased to 8.7 months in March, its lowest level since August 2022, according to Associated Builders and Contractors. Meanwhile, the Dodge Momentum Index, a benchmark that measures nonresidential building planning, tumbled 8.6% in March, a fall that Sarah Martin, Dodge’s associate director of forecasting, tied to banking insecurity. “Lending standards for small banks in particular have substantially tightened as banking insecurity intensifies,” said Martin. “As a result, owners and developers are more likely to pull back in the short term.”
Housing construction, building permits down in March
Construction of single-family homes increased 2.7% in March compared with February, but that wasn’t enough to offset a decrease in the apartment sector, as construction of new homes declined 0.8% overall, according to federal data. Meanwhile, building permits declined 8.8%. Full Story: MarketWatch (tiered subscription model) (4/18)
Major gains seen by top 25 apartment builders
With 14,184 units started last year, Summit Contracting Group in Jacksonville, Fla., leads the National Multifamily Housing Council’s list of the top 25 apartment builders. Alliance Residential in Scottsdale, Ariz., is second with 13,480 units, while Wood Partners in Atlanta is third with 10,650. Most builders on the list registered substantial increases compared with 2021.Full Story: Multifamily Dive (4/17)
A California construction company owner has been ordered to pay nearly $985,000 and serve 78 months in prison for his role in a bid-rigging and bribery scheme aimed at California Department of Transportation officials to steer contracts his way, according to a Department of Justice release. Bill R. Miller, owner of Sanger, California-based BRM Construction, previously pleaded guilty to bribing a Caltrans official with more than $800,000 in cash, wine, furniture and remodeling services on his home to game the agency’s bidding process from 2015 to 2019, according to court documents in the case. Miller schemed with his former business partner, William D. Opp, and bribed former Caltrans contract manager Choon Foo “Keith” Yong to stack bids in their favor. Both Opp and Yong previously pleaded guilty to their involvement in the ruse, but Miller is the first defendant to be sentenced in the case.
Construction input prices, or how much it costs to build a given project, fell for the first time in more than 18 months on a year-over-year basis, but were still 39% higher than February 2020, before the COVID-19 pandemic sent supply chains reeling. Both overall construction prices and nonresidential costs were down 0.9% and 0.6%, respectively, compared to March 2022, according to an Associated Builders and Contractors analysis. That’s the first time they’ve dropped annually since August 2020, said Anirban Basu, ABC chief economist. Still, costs inched up over the last 30 days. Overall construction and nonresidential input prices rose 0.2% and 0.4% in March, respectively, compared to the previous month. “The good news is that the latest producer price index data, which show broad-based declines in both goods and services prices, suggest that the expected 25 basis point interest rate hike at the Federal Reserve’s May meeting will be the last of the cycle,” said Basu. “The bad news is that this data indicates greatly diminished pricing power among wholesalers and others.”
Reuse of construction materials is trending
Deconstruction, which entails reusing materials from old buildings, is taking the place of demolition in many locations as cities divert wreckage from landfills and as consumers seek bargains. Nonprofit Community Forklift has driven expansion of the deconstruction sector, which has tripled in revenue since 2008 and has grown to employ 14,500 people, says Brad Guy, an architect with sustainable architecture consultancy Material Reuse. Full Story: Reuters (4/18)
Trade groups seek swift action on changes in permitting
Industry groups have banded together to press the Senate as it prepares for hearings on ways to accelerate federal reviews and permitting in construction. The hope is that bipartisan legislation is produced and passed by the end of summer, with possible modifications to the National Environmental Policy Act. Full Story: Engineering News-Record (tiered subscription model) (4/18)
More than $1B available to increase work zone safety
The National Work Zone Safety Information Clearinghouse says that more than 850 people died in work zone crashes in 2020 and that 40% of crashes from 2018 to 2020 occurred on interstates. The Biden administration aims to combat the issue by inviting local governments to apply for a slice of more than $1 billion from the Safe Streets and Roads for All program to make high-crash areas safer for construction workers.
Full Story: Department of Transportation (4/17), USA Today (4/17)
It would cost $157.5 billion to rehabilitate the nation’s 88,616 deficient non-federal dams, per a report released by the Association of State Dam Safety Officials this month — a sum that dwarfs the amount of federal assistance available to do so. The price tag to remediate just the most critical dams is estimated at $34.1 billion. Rehabilitation becomes necessary as dams age, technical standards and techniques evolve and downstream populations and land use change. However, many dam owners, especially private dam owners, find it difficult to finance costly rehabilitation projects. Deferring that upkeep can lead to disastrous failures. The federal Infrastructure Investment and Jobs Act includes funding for dam rehabilitation. However, the study indicates that the IIJA’s $4 billion investment over five years is not nearly enough to address even the most dangerous of dams.
This year’s spring construction season could see a change in how firms hire new workers. Despite January data implying the demand for construction jobs was slowing, the number of open positions for which contractors were hiring grew again in February, according to a report from Associated Builders and Contractors. So, contrary to how things looked earlier this year, construction’s labor shortage remains elevated. These renewed hiring numbers are an optimistic sign as the industry faces high interest rates, recession fears and “slow implementation of America’s infrastructure rebuilding program,” said Anirban Basu, ABC’s chief economist. Nevertheless, there simply aren’t enough people available to fill those jobs. In fact, a large number of firms opt to not bid on some projects, as they do not have the staffing to deliver the work, according to the Associated General Contractors of America. Contractors on the ground are seeing the same thing, and say that the industry has a healthy amount of projects, but little staff to deliver them. “In North Texas we are extremely busy,” said Keyan Zandy, CEO of the Skiles Group, a Richardson, Texas-based contractor primarily specializing in healthcare projects.
The Producer Price Index for final demand increased 0.7 percent in January. Prices for final demand goods advanced 1.2 percent, and index for final demand services moved up 0.4 percent. Prices for final demand rose 6.0 percent for the 12 months ended January 2023.
The latest data is causing some economists to rethink their growth expectations for 2023, with strong jobs numbers and other factors appearing to diminish the chance of a recession. However, a robust labor market could also make it more difficult for the Federal Reserve to accomplish its mission of taming inflation, which could lead policymakers to take more aggressive action. Full Story: The New York Times BNN Bloomberg (Canada)
Federal Reserve Governor Michelle Bowman has indicated more interest-rate increases are needed to balance supply and demand and ultimately lower inflation toward the central bank’s goal. “I expect we’ll continue to increase the federal funds rate because we have to bring inflation back down to our 2% goal and in order to do that we need to bring demand and supply into better balance,” Bowman says. Full Story: Reuters
After recording their biggest drop in over two years, overall construction and nonresidential input prices whipsawed upwards again in January, increasing 1.3% and 1.1% respectively, according to an Associated Builders and Contractors report. Both categories are 4.9% higher than a year ago. The jump in overall construction input prices reflected the smallest annual increase since January 2021, according to the report, but stymied progress made in December, when prices plunged 2.7%, the largest drop since April 2020. “Recent employment and retail sales reports indicate that the economy is not slowing nearly as quickly as predicted. That is the good news,” said Anirban Basu, ABC chief economist. “The bad news is that the economy remains overheated, a phenomenon neatly reflected in the January PPI data, which indicated that construction input price gains accelerated on a monthly basis.”
Some US cities monitored by Mortenson’s Construction Cost Index saw modest cost declines in the latest quarter, and overall the index registered a 0.2% gain. For the year, costs were up 6.7%, but Mortenson concludes that “[t]he overall outlook for nonresidential construction remains positive, despite persistent challenges and uncertainty regarding the overall economy.” Full Story: Construction Dive (2/13)
Despite challenging conditions, the US accounted for more than 40% of the $5.38 billion invested globally in construction technology last year, down only a bit from the $5.4 billion in 2021, according to a report by Cemex Ventures. Looking ahead, Cemex predicts steady investment in the sector this year as economic uncertainties ease. Full Story: Construction Dive
Prices for construction materials are expected to rise in 2023 as the construction industry deals with high input costs, inflation, increased interest rates and supply chain snags, according to a report by Linesight, but there are some positive predictions as well. “On the bright side, investments by the government in housing, transportation and manufacturing through 2026 should stimulate growth at an average annual rate of 3.7%,” said Patrick Ryan, executive vice president for the Americas at Linesight.
Full Story: For Construction Pros
Civil contractors and engineers cite challenges on a number of fronts but remain optimistic for the future, according to Dodge Construction Network’s Civil Quarterly 2023 Issue 1 report. The report covers topics including trends in building information modeling and, for the first time, the subject of mental health, with respondents more willing to discuss a matter of lasting concern in the industry. Full Story: Construction Dive
He plans to run for the seat now held by Senate Pro-Tem Toni Atkins, who will term out of office in 2024. The former State Assemblyman has been on the Board of Supervisors since 2018. He has collected more than $1 million since he opened a campaign committee several months ago, and he has endorsements from San Diego Mayor Todd Gloria, former state Sen. Christine Kehoe, Lemon Grove Mayor Racquel Vasquez, and San Diego City Council President Sean Elo-Rivera. Story
The fact that many state budgets are in surplus suggests that the $350 billion in federal direct aid under the American Rescue Plan is working by stimulating economic activity and tax revenues, says Gene Sperling, who is managing disbursal of the funds for the Biden administration. Sperling says the decision to opt for direct payments drew on experience from the slow recovery after the Great Recession, when “[w]e saw then what it meant when there weren’t enough resources for [counties].” Full Story: Route Fifty
A wider variety of construction materials covered under Buy America provisions in the bipartisan infrastructure law may be mandated under new guidance issued by the Office of Management and Budget. However, construction and transportation officials are raising questions, as the guidance “continues to create uncertainty as it relates to new Buy America requirements and at a time when most of the country will soon be entering construction season,” says Brian Turmail, spokesperson for the Associated General Contractors of America. Full Story: Engineering News-Record (tiered subscription model)
After two months of decline at the end of 2022, US retail sales rose 3% in January, marking the largest increase since March 2021, according to the Commerce Department. Retail sales exhibited growth in many sectors of the economy, including at restaurants, department stores and appliance sellers. Full Story: CNBC The Wall Street Journal
Watsonville, California-based general contractor Granite Construction reported net income of $22.1 million for the fourth quarter, compared to a $13.2 million loss 12 months earlier, but also acknowledged an accounting oversight that will force it to restate its previous financial results for the second time since 2021. For the full year ended Dec. 31, 2022, the company had $83.3 million in profits, an eight-fold increase from the $10.1 million it reported in 2021. Granite pegged its improved net income to its focus on smaller, higher profit projects and the unleashing of cash from the Infrastructure Investment and Jobs Act. Overall revenue was down for the quarter and year at $789.2 million and $3.3 billion, respectively, marking drops of 2% and 5.7%.
Stantec will lead design and engineering work on a $25 billion inland freight facility east of Los Angeles under contract with developer Highland Fairview. Construction is expected to begin this year on the hub, which will span 4 square miles offering 40.6 million square feet of warehousing. Full Story: Engineering News-Record (tiered subscription model)
A new Legislative Analyst Office report on needed construction at the 23-campus California State University system concludes that $3.1 billion will be required over the next 10 years, on top of the existing $6.5 billion backlog of regular maintenance. Meanwhile, the separate University of California system requires $12 billion in new work, in addition to a $7.3 billion backlog. Full Story: EdSource
Google remains committed to its planned office development in downtown San Jose, Calif., but is now reassessing its timing, according to Mayor Matt Mahan. Google, which recently carried out layoffs, is taking into account an uncertain economy as it weighs whether to proceed as planned or delay construction, Mahan says. Full Story: KPIX-TV (San Francisco)
Officials in Sacramento, Calif., unveiled plans for a $1.3-billion expansion of Sacramento International Airport that they plan to begin construction on next year. The Sacramento County Dept. of Airports detailed the plans dubbed “SMForward” on Feb. 1. The expansion will be split into six projects to be built through 2027. These include the construction of a $391-million rental car facility, a $140-million pedestrian walkway connecting Terminal B to Concourse B, $380-million Terminal B parking garage, additional gates and amenities at Terminal A and Concourse B and other improvements for connecting to ground transportation. Story
A dam deemed a high-risk safety hazard in California’s Tennessee Valley will be removed under a National Park Service plan now approved by the California Coastal Commission. The move also will restore a natural wetland eliminated when the earthen dam was built in the 1960s to attract water fowl. Full Story: Marin Independent Journal (San Rafael, Calif.)