Residential Makes Gains in Construction Spending
According to several market reports, construction spending in November witnessed an increase when compared to October and the same period in 2020, as gains in private residential outweighed decreases in public outlays.
While outlays for construction projects rose 0.4% at a seasonally adjusted annual rate of $1.63 trillion, the Commerce Department noted that residential construction rose 0.9% during the same month and is up 16% over the past year. Year-to-date spending in the first 11 months of 2021 combined increased 7.9% from the total for January-November 2020.
Spending on new single- and multifamily residential projects, along with additions and renovations to existing houses, increased 0.9% for the month and 16.3% from a year earlier. Private nonresidential spending edged up 0.1% from October and 6.7% from November 2020.
In looking at some of the specific sectors in private nonresidential construction, power construction reportedly rose 0.1% for the month and 7.5% year-over-year. Among other large segments, commercial construction—comprising warehouse, retail and farm structures—dipped 0.1% in November but jumped 15.1% year-over-year.
Manufacturing construction increased for the eleventh month in a row, by 0.9%, putting the total 22.4% above the year-earlier level. Private construction spending also experienced a slight increase of 0.6% in November from the October total and 12.5% from last year.
However, despite these positive numbers, it was reported that spending on public construction projects fell 0.2% and is down 0.9% year-over-year. Nonresidential construction also remained flat during the month but is up 3.4% since November 2020.
One of the worst nonresidential construction niches reporting decreases is that related to offices, which is down 32.1% over the past 12 months. Other segments experiencing year-over-year declines are public safety and lodging.
According to an analysis of federal construction spending data by the Associated General Contractors of America, public sector investments were down in part because Congress has failed to provide funding so far for the Bipartisan Infrastructure bill enacted last year.
“Private nonresidential spending appears to be on a solid upswing, with five consecutive months of growth, but public outlays for construction remain erratic,” said Ken Simonson, AGC’s Chief Economist. “The public side isn’t likely to post steady gains until funds from the new infrastructure law become available and turn into actual projects.”
To those points, the Associated Builders and Contractors echoed that national nonresidential construction spending remained virtually unchanged in November.
“If no news is good news, then this was a fine report,” said ABC Chief Economist Anirban Basu. “There is little in the data for November 2021 that was earth-shattering. It is interesting to note, however, that the streak of meaningful monthly increases in nonresidential construction spending effectively ended in November, strongly suggesting that supply chain issues and worker shortages continue to constrain the pace of recovery in nonresidential construction (the same issues that continue to suppress contractor margins, according to ABC’s Construction Confidence Index).”
New residential construction was first reported to be on the upswing back in October 2021 when the U.S. Census Bureau and the U.S. Department of Housing and Urban Development released new reports on the sector.
According to the report, residential construction in August showed a seasonally adjusted annual rate of 1.62 million units, 17.4% above the pace of a year ago. The rebound was mostly attributed to a 21.6% jump in construction of apartment units, which was reported to have offset a 2.8% fall in single-family construction.
Another sign that residential construction would stay on the rise, the report suggested, was that applications for building permits had seen a 6% increase, reaching a seasonally adjusted annual rate of 1.73 million units. Construction was also reported to be up across the nation, except in Western states.
In a separate survey conducted by the National Association of Home Builders and Wells Fargo, sentiment revealed a slight increase to 76 in September. Although the slight increase ends a three-month-long decrease, the index remains far below the record reading of 90 last November.
Other reports issued by the NAHB revealed an increase in residential remodeling. For the third quarter, NHAB’s Royal Building Products Remodeling Market Index posted a reading of 87, up five points from the third quarter in 2020.
Around the same time, the Associated General Contractors of America also weighed in on ongoing residential work, reporting that while construction spending stalled over the summer as a result of decreased nonresidential projects, residential work was on the rise.
According to AGC, for the month of August, residential construction segment climbed 0.4% for the month and 26% year-to-date.
In November, President Joe Biden signed into law the largest federal investment in infrastructure in more than a decade. The $1.2 trillion Build Better Plan is expected to repair roads, bridges, residential and commercial structures.
Of the funding allotted, roughly $5 billion will be used for various programs aimed at reducing electricity use in buildings, improving building materials and training on design, construction and maintenance for energy-efficient structures.
The bill will also fund a series of problem-solving programs, for issues varying from drafty windows in affordable housing complexes to aged air ducts and outdated building codes.
According to reports, the largest chunk of the $5 billion will be utilized for the Department of Energy’s Weatherization Assistance Program, which aids structures owned or occupied by people with low incomes. The legislation is expected to provide a $3.5 billion infusion for the program, which will be used to fund upgrades such as insulation, windows, roofing, and heating and cooling devices.
Another program receiving a sizable amount of funding from the bill is the Energy Efficiency and Conservation Block Grant Program. Expected to receive $50 million, the program is a funding tool commonly used by local governments to issue grants for energy retrofits.
Similarly, the bill will also set aside $500 million for energy efficiency and renewable energy improvements specifically at public schools, another provision outlined by the AIA.
Although the infrastructure bill will be aiding some preexisting programs, there are several new programs being created because of the approved funding. To help understaffed and underfunded local governments upgrade their building codes, the legislation has allotted $225 million in a new program that will work to help get codes updated to the most recent energy-efficiency standards. Related to this program’s goals, another new program will receive $10 million to provide funding to higher-education institutions to establish centers where students can learn how to assess and maintain energy efficiency in buildings. Finally, a $50 million program will support the use of energy-efficient construction materials in buildings used by nonprofits.
The new programs are expected to help improve the resiliency of low-income organizations while also spurring research into low-carbon building materials.