It remains a bountiful time to be in construction as growth is expected to continue across the board within the sector in 2019. Multiple reports are reaching this conclusion, with an emphasis that commercial and civil construction are really booming. The economy is strong and keeping ample work coming across the desks of non-residential builders. That is not to say that residential construction isn’t healthy and experiencing growth, but these reports suggest red flags may be starting to arise. Even more concerning is the fact that these red flags hold true for both short- and long-term projections. A deeper look and comparison of these reports offers great insight into the changes that residential builders must make to keep up with the growth that commercial and civil construction companies will experience.
Data Behind the Residential Lag
Two reports that were recently released, one by ConstructConnect and the other by the National Association of Realtors, both yield results consistent with the fact that commercial construction is experiencing prosperity that is outpacing that of its residential counterpart. The ConstructConnect report forecasts that combined commercial and civil construction will “grow 4.8%” in 2019. Their report forecasts residential construction to see only “3.5% growth” in 2019, down from 5.9% year-over-year. The National Association of Realtors reported that there are approximately 30,000 more employees in non-residential construction than during the peak periods before the housing recession. On the residential side the NAR report suggests that less than 5% of the 2019 demand in housing units will be started during the year. These reports yield exciting results and projections for those in non-residential construction and serve as a caution to those in residential construction where red flags have been raised.
Keeping Pace with Commercial and Civil Construction
The challenge for residential construction to not trail further behind non-residential is simple at the surface level: the supply is not meeting the demand. It is important to acknowledge that there is growth still being experienced within residential construction. Those who are not satisfied by current growth rates (and trailing non-residential growth) are proactively strategizing how to increase the number of housing starts and close the gap between the housing supply and demand (and the gap between residential and non-residential growth). The obvious solution for supply constraints comes in two forms: increase the number of residential construction workers or decrease the time spent to build houses. However, there are immediate challenges to both solutions. Residential builders must compete with other industries, such as manufacturing, to attract more talent and accelerate job growth. Buyers often want customization and unique design in houses, making it difficult to decrease time spent building houses through standardizing the process. Given how much additional revenue is on the line, it should be expected that these red flags will not be taken lightly, and solutions will be prioritized. In the meantime, commercial and civil construction companies can enjoy their growth without looking over their shoulders at trailing residential builders.