Experts Weigh in Construction Market Post Election

November 9th, 2012 by DWM Magazine

Two days after the presidential election, Reed Construction Data hosted a webinar in which economic and housing experts discussed the impact President Obama’s reelection will have on the construction industry. What’s the overall impact: not a drastic one, agreed the experts.

“It is incredibly modest,” said Kermit Baker, chief economist for the American Institute of Architects. “Things look the same now as they did on November 5. There are no dramatic changes as to what we can expect.”

“The election doesn’t affect our forecast as much as you would think; it affects it as far as the impact on the economy but there is a lot that is baked in the pie already,” said Bernard Markstein, chief economist, Reed Construction.

Baker did, however, say that one thing has changed: “We can’t use the election excuse anymore for delaying decisions,” he said.

He added that during the election many serious issues were put off such as the fiscal cliff, tax issues and these now must be made a priority.

“Quite dramatic spending cuts will be made but they won’t come until the eleventh hour,” said Baker.

Ken Simonson, chief economist, Associated General Contractors of America (AGC) agreed that a decision won’t come early.

“We are getting ever closer to that cliff,” he said. “We won’t know if we are going over the cliff until New Year’s Eve and that is very worrisome. That will affect investment decisions by companies, stock market, etc.”

As the President and Congress work to avoid this plunge, Baker said the mortgage interest deduction may be at risk, as serious government money is devoted here.

Baker added he was surprised how small of a role housing played in the election as it usually is integral to an economic recovery.

“The distressed housing market has to be dealt with,” he said. “Fannie Mae and Freddie Mac also have not been dealt with. They cannot be eliminated until a replacement is up and operating.”

Baker may have surprised some when he said that immigration policy, not usually seen as a housing issue, “should be dealt with as a housing issue as immigrants account for a large share of net household formation.”

Another issue President Obama will have to contend with is ObamaCare. “With the election settling we now know we won’t repeal ObamaCare though we still don’t know how we will fund it,” said Markstein. “Whatever it is there has got to be problems in it and future legislation will deal with that.”

He ended with some dismal news telling attendees they need to stop thinking there will be major additions of manufacturing jobs.

“The idea that there will be tons of employees in manufacturing is a dream we have to let go,” he said.

When attendees were able to ask questions many wondered if the outlook would still be the same if Romney was elected.

“We would have seen gridlock with either candidate,” said Markstein.

“The differences are really more long term, shaping fiscal policy, etc.,” added Baker. “In the short run it’s hard to make an argument that there would have been significant differences [if Romney was elected].

Moving past the election, the experts also made predictions for the housing and construction industries moving forward.

“The consensus is we will be at 750,000 starts at the end of 2012,” said Baker. “We forecast a million starts at the end of 2013 but we will still be well below the long term trend even with healthy gains.”

Turning to non residential construction, Simonson said there will be a general improvement led by the power and energy sectors, and with some improvements in warehouse and distribution sectors and higher education. “Multifamily could be strongest of any sector next year,” he said.

“Office and retail are going to remain in the doldrums,” said Simonson. “Companies are shrinking the amount of space they require as they get rid of computer rooms and move to cloud based systems, etc., and as employees work remotely.”

Another major challenge is labor markets as workers are leaving for other industries such as oil and pipe fitters. “Subcontractors are having problems finding employees,” he said.

Overall, Simonson predicts total construction spending will be up 6-10 percent in 2013. “After that we will have upper digit increases,” he said.

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