The State of Construction In These Days and Times

It could be said that we’re in a “Slowdown” or a “Recession,” or maybe even a “Depression.”Whatever it is, it’s nothing like anything that any of us have seen before. Or is it?

The previous recessions (the ones that most of us have been around for anyway) have taken different forms and have had different causes:

  • Recession of 1960– caused by world trade issues, fear, unemployment and problems with the GDP following the years of boom after WWII and Korea.
  • Recession of 1973 – caused by an “oil crisis” and quadrupling of the cost of oil- stagnation and inflation caused the coining of the word “Stagflation.”
  • Recession of 1980 – caused by trouble in the Middle East, high oil prices, tight money, and inflation.
  • Recession of 1990 – caused by high oil prices, industrial production issues and world trade issues, and the Gulf War.
  • Recession of 2001 – The September 11th attacks and the collapse of the dot-com bubble.

And now, a new Recession – The Recession of 2008 – has been caused by the housing market scandals, liquidity crisis, high oil prices, and banking collapses.

On second thought, they aren’t that much different are they? They happen about every ten years and they are caused by oil prices, too much (or not enough) money flowing, and greed or fear. That pretty much sums it up.I know, it is a lot more complicated than that, but this works for me.

What does this recession mean to the construction industry RIGHT NOW?

Take a look:

  • The banks are not able, or don’t want, to loan money on reasonable terms so…
  • The developers are not able to make their numbers work to make any profit or they are not even able to get a loan, so…
  • People are not building buildings because they are scared or they can’t get money, or…
  • Anyone with cash is spending it on “GOOD DEALS” on existing buildings caused by all the foreclosures and fire sales and not on new construction, and…
  • Architects/Engineers are not designing buildings because new projects are scarce, so…
  • Contractors are not building buildings, and…
  • Suppliers are not selling building supplies, and…
  • Architects, contractors and suppliers are not buying other goods and services, because they don’t have work (or even a job) and…
  • Retailers are not getting customers, so they are not making money, and…
  • Retailers are laying off people, and…

You get the idea – it’s a self perpetuating mess.And my prediction is that this mess will be over when we stop being scared by all the media reports, and when the banks (and the government) finally get their act together and start loaning money.

I’ve been talking to a lot of developers, bankers and fellow professionals lately and here are some of the things I am finding out:

  • Overall things are not as bad as you might be told, although all the 13 million people that are out of jobs may not agree.
  • Developers WANT to be building buildings (that’s what they like to do), and most of them would be if they could just get some good money…
  • The bankers want to loan money, there’s plenty around and it’s not making them anything just sitting there, but federal regulators and bureaucracy have hindered their ability to do deals.
  • Prices of construction (labor and materials) are REALLY good right now.There is plenty of motivation and subcontractors are cutting their margins tight (if there are any margins).Suppliers are in the same boat, material prices are still going down and margins are small.
  • Competition is rampant…there are 10 contractors bidding jobs that would have only had one or two bidders a year ago.
  • Overall, costs of construction on commercial projects are down anywhere from 20 to 40%.

Bottom line is HANG IN THERE. Things will turn around.And even if this SlowReDepression is longer and deeper than most that we’ve seen, things ARE now turning around.At least we are not in a free fall, and people that I’ve been talking to are more optimistic than they were a couple months ago. And if you have money, or can get it, NOW is a good time to build.

My other comment is that it is obvious that if we could just do something about our dependency on oil, we could avoid at least one of the major factors that cause Recessions!

That’s my 2 cents.