As we look to the post-COVID economy, positive signs are emerging in many key economic indicators — declining unemployment, increased spending, and rising consumer sentiment. As a builder turned banker, construction numbers are a factor that I monitor closely in terms of one of the real signs of the health of our economy.
Is a springtime construction renaissance currently building? In my view, we are witnessing firsthand several indications that suggest growth in this sector. Projects that have been sidelined for months are finally coming off the drawing boards and receiving funding. Amid an ongoing housing market boom, the construction industry added 110,000 jobs in March, recovering over 80% of the jobs lost over the course of the COVID-19 pandemic.
Despite the increased lead times for products and project starts or increased prices of materials, this activity is signaling a strong resurgence for builders in the coming months, with a newfound optimism for the sector emerging from the COVID-19 pandemic.
Construction as a Key Economic Indicator
ConnectOne uses construction, specifically new-home construction, as a measure of economic performance in our local markets. In fact, residential new home construction has over a 3X multiplier effect on U.S. GDP. Essentially, for each dollar that is put into a new home being constructed, it recirculates and brings the overall economy $3 in value.
Supply & Demand
While home renovations and new home sales activity have increased significantly in recent months, a shortage in the U.S. still looms. A new analysis from Freddie Mac found that approximately 4 million new homes will be needed to meet existing demand, representing a 52% increase compared with 2018. This gap presents local builders with immediate opportunity to accommodate this unmet demand while also generating economic activity.
Increased Growth is More Than Just Numbers
The increased momentum we can expect will not just come from larger volumes. The construction industry is growing its bandwidth, compatibility and efficiency through technology and investments in this space. The entire business landscape has entered into a digital revolution and construction is no exception. Construction firms are already implementing a number of solutions from cloud-based software to improve workflow to the utilization of drones for more accurate, efficient site visits or even robotic constructors to provide additional manpower. As technologies become more financially accessible and user-friendly, builders – both large and small – are beginning to fuse these new tools into their business.
It’s important to note that as builders and construction companies ramp up their technological capabilities, they’ll expect the same of their service providers — whether they be title companies, attorneys or banks.
In both cases, the growth in the construction space must focus on more than just financials and projects. Builders and service providers must tap into modern day tools to grow their businesses in smarter, more efficient ways.
There is much to be optimistic about. The post-pandemic environment has introduced several new market dynamics, which present with them new opportunities. We’ve seen change in the residential market as Americans relocate to new geographies, and in some cases, companies relocating as well. Many retailers or services businesses are following their clients and building outposts in new markets. While retail space may be shrinking, warehousing needs have escalated and as a result warehouse construction is ramping up.
The new administration’s proposed infrastructure bill complements housing activity , further developing and enhancing communities across the country. The proposal tackles many components of America’s infrastructure that are in need of repair – the American Society of Civil Engineers recently gave the U.S. a “C-” in its 2021 Report Card for America’s Infrastructure.
Ultimately, amid so much change, there is cause for hope. Momentum is building in the construction industry and it’s a welcome sight for all.
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