When Richard Branch gazes out at today’s commercial and residential construction markets he sees industries primed to head in one of two directions. We don’t have to tell which two those are. As Chief Economist at Dodge Data & Analytics, it is Branch’s job to track, analyze and forecast construction activity—no easy task today. So, as the country waits for additional details on the Biden Administration’s $2 trillion dollar “Build Back Better” infrastructure plan, we asked Branch to share some of his insights.
What’s the overall vibe for 2021’s construction market?
The overall economy will pick up speed as more Americans become vaccinated, but it will be difficult for the construction sector to take advantage of that acceleration. Growth in activity will be hampered by an overhang of space, growing budget gaps for state and local governments, and rapidly rising material costs. There will be bright spots from single family and warehouse construction starts.
Where has the pandemic left us?
The pandemic and economic fallout have left the industry in a deep hole. From 2019 through Q2 2020, the total value of construction starts fell 22%. Progress was made by the end of last year, with the total starts value in Q4 just 9% lower than the end of 2019. But much of that is due to single family and warehouse activity. When those two sectors are removed, the value of starts would still be off 21% from 2019’s peak.
What sector holds the most promise?
First, much of the growth in the residential sector last year was outside of major urban areas as homebuyers sought less density during the pandemic and greater affordability. This was fueled by a rising number of Americans who have the flexibility to work from home. This shift to the suburbs and beyond should lead to increased activity for schools, healthcare and public works projects that need to support this demographic shift. Additionally, if an infrastructure package were to be passed by Congress in 2021, it could be the catalyst for strong growth in the years ahead.
How prevalent is construction to the economy’s viability moving forward?
It is a critical part. Be it roads and transit systems to carry goods and people across the country or schools to educate our youth, the construction sector is a vital key to unlocking further growth in the economy.
How will a new infrastructure plan help, if passed?
If approved, it could create a large injection into state and local coffers, which would allow them to undertake significant investment in a diverse list of project types from public works, to transit systems and rural broadband.
Lightning round — Looking ahead
Dodge Data & Analytics’ Chief Economist Richard Branch gives us his rapid-fire assessment of which categories hold the most promise (Answers include: Strong, Good, Fair, Hopeful):
- Public works — Strong
- Transit/high-speed rail — Good
- Renovations — Strong
- Renewable energy — Fair
- Data centers — Fair
- Healthcare — Hopeful
- Restaurant — Hopeful
- Retail — Hopeful
- Hospitality — Hopeful, but probably unlikely