Construction industry trends: Part 2

By Maureen Aylward

With housing construction in the US taking another slide, we went out and asked our Zintro experts if there are areas in construction that are seeing growth and how businesses are coping with the latest downturn. This is Part 2 of our series on the construction industry.

Robert Cummings, a consultant in the real estate sector, says that a massive shift away from single family home ownership will continue with the focus being on multi-family rentals. “One trend that is pushing this to the forefront is the interest in urban living; to be close to work given the high price of gas and the desire to be near shopping, entertainment, and transit,” he says. “The other force is the number of new renters who were victims of foreclosure over the last few years.”

Cummings sees this shift in the mindset of younger generation adults. “Young adults, remembering how their parents’ home values plummeted, may no longer see buying a home as an option, especially with rising prices,” he says. “They missed that boom and bust cycle and may defer a housing investment for a decade or more. Rentals offer more hotel-like amenities that home ownership cannot compete with in terms of location and convenience.”

Cummings says that building permit data show that construction has increased in towns and cities over the last 10 years, demonstrating the desire to be in 24-hour living places with walking options to retail, restaurants, parks, supermarkets, and offices. Boston, New York City, Washington, Seattle and smaller cities bear this trend out. “Well capitalized investors, including public REITS, can take advantage of the pent up and growing demand for multi-family housing in many areas of the construction spectrum,” says Cummings.

Mark Hirth, a real estate development consultant, thinks that the single family housing market is bouncing along the bottom right now. “The government is sending conflicting signals to the market about which way it wants housing to go,” he says. “On the one hand, the government has provided tax incentives and forced down long-term interest rates to make home ownership more attractive. But on the other, it has pressured banks to tighten credit to only the most rock solid of borrowers. Until this uncertainty is settled, the market is likely to drift sideways.”

Hirth says these circumstances do not mean that the construction industry is at a stand still. “The uncertainty in the future direction of home prices is creating a demand surge in rental housing. That, coupled with the emerging recovery in the general economy, and the maturing of younger generations, is creating a surge in demand for apartment units. Certain select industries are also starting to expand office and infrastructure demand,” he says.

Jonathan Fearn, a CEO of a real estate development and construction firm, says that the rental market is showing signs of considerable strength due to many various factors:

  • increasing rates of household formation particularly among people in their 20s,
  • potential home purchasers standing on the sidelines with the uncertainty of the housing market, and
  • former homeowners losing their homes to foreclosure and underwater mortgages.

“Construction will increase for multi-family residential on the rental side. This is happening now in San Francisco,” says Fearn. “But this growth is not enough to compensate for the job losses in the lagging for-sale housing market. However, construction companies should begin to move into the multi-family residential field if they have or can prove the expertise.”

By Maureen Aylward

What do you think?

If you have a question or comment about the construction industry we would like to hear it. Click here. Would you be interested in signing up to be a Zintro expert and generate free leads for your business? Click here.