In 2004, residential construction accounted for about $550 billion (55 percent) of the $998 billion put in place in the U.S. The surge has been fueled mostly by new single-family construction, which jumped 19 percent in 2004 to $370 billion. A conspicuous cooling of the housing market started in late 2005 and continued into 2006, although residential housing starts are still at historically very strong levels.
Most builders are small, with about ten employees, build fewer than 20 homes per year, and have annual revenues under $3 million. Only about 2,000 companies have annual revenue exceeding $10 million.
Single-family homes comprise approximately 80 percent of the average 2 million homes built each year, while 20 percent are typically either apartments or condominiums.
Key Trends in the Industry
A number of major trends across North America are driving changes in the industry, including:
Mixed-Use Developments – Although they are not new, the number of mixed-use facilities is on the rise. Some trends that contribute to the popularity of these live/shop/work developments include the increase in the number of childless couples, earlier retirement ages, higher disposable income and the growing importance of working at home. Mixed-use facilities also are considered ways to revitalize downtown areas.
Energy Efficiency Growing – Energy concerns across the world have led to an uptick in building of energy-efficient homes.
Regional Displacement – Families displaced by the hurricanes of 2005 will add to demand for housing in surrounding areas of Texas, Louisiana, Arkansas, Mississippi, Alabama and select metro areas farther away, especially Atlanta.
Critical Issues
A number of critical issues exist in the segment including:
Building Materials/Land Costs – Construction costs are increasing faster than the general rate of inflation, according to the Associated General Contractors of America. Natural gas prices in particular will stay high through much of 2006. Sometimes builders can pass higher labor and material prices to consumers; however, when prices rise quickly, some builders, especially those with less leverage, get caught with costs between the time they agree on a price and the time they finish the project.
Shortage of Seasonal Labor – Cyclical demand in local markets means that few builders maintain a large permanent labor staff, and they must hire when demand increases. Local labor shortages are frequent. In addition, certain regions are especially dependent on immigrant workers. About 20 percent of the overall U.S. construction work force is foreign born, and Hispanic immigrants comprised about 40 percent of the new construction jobs created in 2004. The current focus on immigration reform could have a significant impact on construction companies in states such as Texas and California.
Environmental Regulations - In many urban and suburban areas, builders are increasingly being forced to construct new homes on "marginal" lots that may abut wetlands, waters, or wildlife areas, conflicting with wildlife preservation efforts and increasing construction costs. Environmental Protection Agency and Endangered Species Act regulations commonly require costly storm water management systems and erosion control management.