The new Trump Administration’s aggressive policies, particularly on international trade and immigration reform, could, if executed as planned, “greatly affect” how America’s construction industry does business this year and beyond.
In its Q4 2016 Construction Outlook, which it released earlier this week, JLL also continued to see construction labor as a “pain point” for the industry that will cause wages to rise and impact project timelines and budgets. And materials costs, which for the most part stabilized in the latter months of 2016, should hold steady if, as expected, construction activity slows this year.
Twenty-sixteen was a banner year for construction spending. Led by the hotel and office sectors, spending increased over the previous year by 4.5% to $1.2 trillion. That rate of growth was nearly triple the GDP inflation rate.
Nationally, the construction and contractor backlog in Q4 2016 stood at 8.7 months of future work across all sectors, up 2.2 percent from the fourth quarter 2015 and tracking closely with national trends. The Midwest in particular enjoyed sizable year-over-year growth that quarter, while work in the South remains steady. The Northeast and West regions continued to slip, each well below 2015 levels.
Not surprisingly, construction costs are rising faster in metros where construction activity has been robust, but also where labor is in shorter supply. Image: JLL Research
Building costs rose nationally by a modest 2.7%, with nearly half of that increase occurring in the fourth quarter, spurred by strong residential construction that drove demand, and uncertainly surrounding the effects of the Trump presidency.
JLL doesn’t expect the manifestations of policy decisions coming out of Washington to intervene on the construction industry until later this year. But JLL’s forecast strikes a cautionary pose about the prospects of “voided international trade deals and new import tariffs [that] could drive up materials costs faster.”
And at a time when construction unemployment continues to fall—last week, AGC America reported that from January 2016 to January 2017 construction employment rose in 39 states and in 216 of 358 metro areas—immigration reform “could shrink the skilled labor supply and spur further wage increases,” says JLL’s report. Large-scale infrastructure projects will create a premium on materials and workforce in specific markets such as Oakland and San Francisco, Chicago, and New York.
Inflation in materials costs is harder to gauge when trade agreements are in flux. The largest price swings in 4Q 2016 were seen on the cement and lumber fronts: cement costs were down 4.7% compared to the same time last year, while lumber was priced 9%-plus higher. Steel, on the other hand, maintained negligible price changes, not even breaking one-tenth of a percentage point over third-quarter prices.
One barometer worth keeping an eye on is the IHS Markit PEG Engineering and Construction Cost Index, which tracks procurement activity among engineering and construction firms. In March, that Index registered its fifth consecutive month of rising prices.
Eight of 12 materials/equipment categories tracked showed rising prices in March. And the six-month expectation index stayed positive, although materials and equipment prices are projected to rise at a slower pace than subcontractor labor.
Related Stories
Hotel Facilities | Aug 17, 2016
Hotel construction continues to flourish in major cities
But concerns about overbuilding persist.
Market Data | Aug 16, 2016
Leading economists predict construction industry growth through 2017
The Chief Economists for ABC, AIA, and NAHB all see the construction industry continuing to expand over the next year and a half.
Multifamily Housing | Aug 12, 2016
Apartment completions in largest metros on pace to increase by 50% in 2016
Texas is leading this multifamily construction boom, according to latest RENTCafé estimates.
Market Data | Jul 29, 2016
ABC: Output expands, but nonresidential fixed investment falters
Nonresidential fixed investment fell for a third consecutive quarter, as indicated by Bureau of Economic Analysis data.
Industry Research | Jul 26, 2016
AIA consensus forecast sees construction spending on rise through next year
But several factors could make the industry downshift.
Architects | Jul 20, 2016
AIA: Architecture Billings Index remains on solid footing
The June ABI score was down from May, but the figure was positive for the fifth consecutive month.
Market Data | Jul 7, 2016
Airbnb alleged to worsen housing crunch in New York City
Allegedly removing thousands of housing units from market, driving up rents.
Market Data | Jul 6, 2016
Construction spending falls 0.8% from April to May
The private and public sectors have a combined estimated seasonally adjusted annual rate of $1.14 trillion.
Market Data | Jul 6, 2016
A thriving economy and influx of businesses spur construction in downtown Seattle
Development investment is twice what it was five years ago.
Multifamily Housing | Jul 5, 2016
Apartments continue to shrink, rents continue to rise
Latest survey by RENTCafé tracks size changes in 95 metros.