Multifamily housing starts plummeted again in December 2009, but a rise in permits that same month just might point to an early recovery. While starts dropped from 7,600 units in November to 7,500 units in December, multifamily permits jumped 20.8 percent in December to 145,000 units, according to data released by the U.S. Commerce Department.
“Permits are up; that is a positive sign,” says Bernard Markstein, vice president and senior economist at the National Association of Home Builders (NAHB). “It shows that these guys do see the need down the road [for development], and if they can get the financing, they will go ahead and start these projects.”
Of course, it’s not time to clink the champagne glasses just yet. It can take up to a year for permits to translate into digging dirt, and NAHB is anticipating an even worse year for construction than 2009, with 2010 year-end projections at 87,000 units compared to 110,000 units started last year. “Not until the second half of the year do we expect things to start to improve,” Markstein says. “In 2011, we are projecting 150,000 starts.”
Recent reports from the Arlington, Va.-based Associated General Contractors of America (AGC) also point to a challenging year ahead for the construction industry. For the first time since the start of the economic downturn, every state and the District of Columbia reported losing construction jobs (for all industry sectors) over the past twelve months, according to a recent analysis of state-by-state employment data. Nevada experienced the largest annual percentage decrease in construction employment (27.7 percent); followed by Wyoming (23.8 percent); Tennessee (20 percent); Montana (19.6 percent); and Arizona (19 percent).
“There’s nowhere for construction workers to turn for relief from job losses and hardship,” said Ken Simonson, the association’s chief economist. “Sifting through the monthly variations, it is obvious that construction employment is losing ground almost everywhere.”
Additionally, nearly nine out of 10 contractors say there will be no recovery in 2010, according to a national construction hiring and business outlook forecast recently released today by AGC. The outlook, which is based in part on survey responses from nearly 700 residential and commercial construction firms, shows that privately-funded construction activity is likely to decline even further this year.
As a result, 81 percent of firms report already having to cut profit margins in their bids just to stay competitive and another 10 percent say they are now submitting bids so low they will actually lose money on the projects. Furthermore, in 2009, 73 percent of firms said they laid off employees, averaging 39 layoffs per firm. For 2010, 60 percent of firms say they are unsure whether they will be able to add new staff, or be forced to make further cuts.
Dan Kaufman at Atlanta-based general contracting firm R.J. Griffin & Co. certainly feels the pain. The senior vice president and division manager is anticipating a more challenging year for his firm than last year, with approximately 600 multifamily starts in ’09 and only 100 starts projected for this year.
“Even though the economy was tanking in 2009, we had three big condo projects that were backlogged,” Kaufman says. “It’s hard to replace a $120 million job right now. What is out there are $5 million jobs, and you can’t get enough of those to get your volume back up.” The firm, which operates in the Southeast, had laid off 25 percent of its workforce since 2005 and anticipates further cuts this year.
“There have been a little bit of green shoots [signaling recovery] but no one has seen the real momentum yet,” Kaufman adds. “Everyone is hopeful that by the end of the year and into 2010 there will be growth, but 2010 is simply a survival year for a lot of companies.”
The lone bright spot for the construction industry? Thirty-one percent of contractors say they were awarded stimulus-funded projects, according to AGC’s forecast report. “The stimulus is finally beginning to have a measurable, but limited, impact on the construction industry,” says Stephen E. Sandherr, the association’s CEO. However, the only types of multifamily work the stimulus has helped directly fund, according to AGC, is military housing and overnight facilities at national parks sites for Park Rangers. The stimulus has also helped provide funding to improve the energy efficiency of a limited number of multifamily communities.