2016 Construction Outlook

For painting pros, the ability to maintain and expand business is tightly connected to the health of the construction industry. Now that we are a few months into 2016, it’s time to take a look at how this year is shaping up. The good news is that — despite some challenges — the outlook is positive, with steady growth across a number of sectors, from an increase in single-family construction and residential green building, to the growing remodeling market, to the expected entrance of millennials into the home-buying market. Here's the breakdown:

Construction Expansion and Challenges

Predictions indicate 2016 will be a strong year for the industry, with most industry experts predicting 5 percent to 6 percent growth, and the value of construction starts nearing $712 billion. Some of the factors that are expected to influence the rate of growth range from new technology trends, to workforce concerns, to homebuyer preferences — but one common prediction dominates: 2016 will bring strong demand and booming business.

Mark Boud, senior vice president at Real Estate Economics/Metrostudy, and Brad Hunter, Metrostudy chief economist and director of consulting, consider 2016 a step-up year in housing's recovery. They look at economic fundamentals and new residential development and construction's key building blocks — vacant developed lots in the pipeline and their pace of absorption by builders, and, ultimately homebuyers. Boud suggests a 14.2 percent year-on-year pick-up in single-family, multi-family and manufactured housing permits from 2015 to 2016, while Hunter predicts an 11 percent increase in single- and multi-family housing starts, 2015 to 2016.

With this growth, come some challenges. Most notably is the shortage of skilled labor — an issue we continue to hear from the trades. In fact, it’s become such an issue that, in some instance, larger shops have actually postponed projects due to labor shortages. The problem? A significant number of employees who left the industry during the recession never returned, which means companies are still struggling to staff their workforces. To illustrate this point, in June 2015, the Bureau of Labor Statistics reported that contractors had 143,000 unfilled jobs on their books in June 2015.

In addition, the departure of older workers, the unreliability of construction jobs in a still-struggling economy, and the lack of trade schools encouraging new construction employees to enter the field add to these woes. Making matters tougher is the slowdown in immigration, as reports say that many workers who returned to Mexico during the recession have not come back due to tougher immigration controls and more job opportunities back at home.

The labor crisis is not a new issue, and most experts predict it will continue well into 2016 and beyond, as the deficit will require multiple years to fill up again. The effect is that many companies are now being more cautious and selective regarding the amount of new work they take on, as well as expressing concerns about growing their companies. The labor shortage has forced employers at all levels to closely examine the number and size of projects they can handle at once.

Multi-family vs. Single-family

Many experts agree that the multi-family sector will begin to cool, with the slowdown likely starting in 2016. On the upside, the single-family sector is expected to grow and enjoy a strong year. In its 2016 Construction Outlook, Dodge Data predicted single-family construction will see a 20 percent increase in starts this year, while multifamily is expected to post a 7 percent gain after several years of double-digit increases. The reasons for this shift are many; among them are improved financing options and higher consumer income and spending.

That said, the single-family sector has a long road ahead on its way back to pre-recession levels. During a webinar in November 2015, NAHB Chief Economist David Crowe said single-family construction is currently 53 percent back to what is considered "normal" — but it should be 91 percent of the way there by the end of 2017. On the other hand, the multi-family sector is expected to slowdown in the next two years, coming in a just 9 percent higher than "normal" levels at the end of 2017.

2016: The Year of the Remodel

Along with strength in the single-family market this year, experts also predict the remodeling sector will “come on strong” and have a banner year in 2016.

According to Mike Horn, vice president of Lowe's ProServices, “The number of homeowners indicating that their home improvement spending increased has doubled since 2012. This trend underscores the great opportunity our professional contractors have to meet the needs of 75 million homeowners... across the country increasingly willing to engage in home improvement in 2016.”

Spending on residential remodels will continue to trend upward, according to experts at a recent press conference hosted by the National Association of Home Builders (NAHB) Remodelers at the International Builders’ Show in Las Vegas. NAHB projects that remodeling spending for owner-occupied single-family homes will increase 1.1 percent in 2016 over 2015, and another 1.9 percent in 2017. Professional remodelers from around the country agree with the forecast, citing clients’ increased financial security.

“Census estimates now indicate that improvements to owner-occupied housing increased at a real rate of 1.3 percent last year, which is consistent with NAHB’s expectations and our measure of remodelers’ sentiment,” said Paul Emrath, NAHB’s vice president for survey and housing policy research. “Going forward, we expect this modest growth in the market to continue, fueled in part by steady appreciation in house prices that will enable owners to tap into their home equity to fund remodeling projects.”

Bob Ernst, president of the Building & Remodeling Association of Greater Boston, pointed to the luxury market, in particular, as the greatest opportunity for remodelers. “At that market level, they’re spending money,” he said. He noted, however, that the middle and lower markets haven't reached the demand level exhibited in luxury markets, as people in those markets are still struggling to save up enough money for their homes.

Green building

The green building movement has typically been led by commercial construction but the residential segment is start catching up, providing a new business growth opportunity. The growing trend in both sectors is driven not just by a desire to produce environmentally-responsible structures but by consumer demand, higher-quality results and cost savings. In addition, baby boomers are proving to be a driving force behind green building, as they are remodeling their current homes and looking for ways to increase energy efficiency and reduce utility bills. According to Dodge Data & Analytics, green building currently accounts for 26 percent to 33 percent of the total residential sector and has helped the industry recovery after the recession.

Mad for Millennials

While millennials — with student loans still hanging over the heads, as well as hesitancy related to the nation’s slow economic growth — aren’t quiet read to fully enter the housing market just yet — they are expected to make a significant impact on the housing market and have already begun to influence builders.

For years now, millennials have opted out of the first-time buyer market, instead staying with cheaper and more secure alternatives, such as renting. However, this is about to change, as rents are set to increase significantly in the next few years. Time.com reported that, this year, 58 percent of U.S. housing markets will raise their rent so dramatically that buying a home would be more economically sound. In preparation for this new generation of homeowners, builders have begun to update their floorplans, including creating a better use of social spaces and technology-driven amenities.

Speaking of Technology…

There’s no way to deny it, technology is changing the construction landscape. For example, Building Information Modeling (BIM) has been a growing trend for years, as it allows all parties on a project to exchange information via common file formats. Industry professionals say BIM provides real business benefits, no matter the level of implementation. Users report better collaboration and coordination among the different parties involved in a project — and it can help contractors save thousands of dollars of unnecessary spending.

In addition, apps for phones and tablets are changing the jobsite. A range of apps are available to help contractors view purchase orders, floorplans and site plans; schedule appointments; submit change orders; look up building codes and manufacturers’ instructions; and track weather.

In the end, the construction outlook for 2016 is cautious but more optimistic than past periods, highlighted by trends in technology leading the way— providing greater opportunities for painting professionals to increase business across the residential, green and remodeling markets. Here’s to a successful and productive year!

Sources:
“10 construction industry trends to watch in 2016,” Construction Dive, Jan. 4, 2016
“Millennials as First-time Buyers in 2016,” Builder and Developer
“Remodeling Expected to Trend Upward,” HBSDealer
“Fear and Fundamentals,” Builder Magazine, Jan. 25, 2016