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Commercial construction sees historic lows as residential construction reach highs

Posted at 9:38 PM, Dec 22, 2020

Commercial construction is experiencing a huge downtown and has yet to recover since it dipped at the start of the pandemic. But in contrast, residential construction is experiencing historic demands.

“It's been a remarkable year for housing,” said Robert Dietz, chief economist for the National Association of Home Builders.

When the pandemic hit, no one was sure what the impact would be on housing.

“People need larger homes; they need to fix up their existing homes and frankly there’s not enough inventory on the marketplace so builders are really busy right now,” Dietz said.

So busy, in fact, that some are deciding to buy new homes rather than wait for their projected renovation to start. The NAHB is a trade association with 140,000 members who handle all facets of family construction.

“We’re looking this year, we think single family construction will be up almost 10% and that will make it the best year for single-family home building since the Great Recession itself,” Dietz said.

But that doesn't, by any means, put anyone in a "perfect" position.

“There are headwinds on the horizon and the industry has faced a number of persistent challenges that have reduced housing affordability,” Dietz said. “Those would include the persistent lack of skilled labor, lack of lots in high-demand markets, and of course regulatory costs have been a persistent thorn in the side of the industry causing costs to be higher and pricing out home buyers out of the market.”

When demand goes up, supply goes down. Lumber prices are at an all-time high. It's taking months for builders to get their materials and supplies, and people are finding themselves stuck.

“It can be a frustrating marketplace because you have those historically low interest rates that you want to take advantage of, you’re looking for more space given the changes to telework and all the factors that have changed as a result of the virus but there’s not the inventory there to meet the demand in front of the industry,” said Dietz.

Ken Simonson, chief economist for the Associated General Contractors of America, was asked whether some are considering moving into the residential sector because it's doing so much better than the commercial side. He said, "Home building is really a different market."

Simonson said the contractors in his organization do “apartment buildings, every type of non-residential building, infrastructure, highways, water and sewer systems, power plants and so forth.” He said contractors across the national saw an initial rebound, but it's been on a steady decline since the spring.

“Non-residential construction, there’s a lot of doubt about whether there’s going to be demand for more stores or offices and whether owners whether they’re private or universities or state and local governments have the money to pay for them,” Simonson said.

He says it's different in every state and region. Some niche industries are doing okay, like data centers, and the fields of medical device and health care. But most industries, like hotel and retail, for instance, have just about disappeared.

“I have to say I’m pessimistic the construction industry is going to lag the overall economy,” Simonson said. “There are hopeful signs about the economy being able to pick up speed in 2021 if enough people get vaccinated and the vaccine proves to be effective.”

Construction tends to take a while to bounce back. And for those who are waiting to move up or move out of their homes, economists say your best bet is patience.