Back to Work?
Region’s Construction Activity Is a Mixed BagIn the post-recession world of construction, when jobs are few and far between, diversity is a good thing.
“We’re on the upswing. It was a pretty solid year, a lot of phone calls,” said A.J. Crane, operations manager at A. Crane Construction in Chicopee. “It’s nice for us that we’re kind of diverse; we don’t specialize in any one thing. We’re interested in quality more than anything.
“A lot of guys do just kitchens and baths, or just additions, or just houses,” he continued. “But we had a really diverse year. We were all over the map — a lot of commercial work, a lot of residential work.”
The general consensus among the builders BusinessWest spoke with is that housing is rebounding from the recession faster than commercial building, but that’s not true for every contractor.
“We’re actually doing a little more commercial, which is different for us,” Crane said. “It’s typically like 60-40 residential, and it’s the other way around this year. It’s not that we’re doing less residential; we’re just doing more commercial. But it doesn’t matter to us who the property owners are — commercial businesses, government, homeowners — we’re interested in doing the work.”
Joe Marois, president of Marois Construction in South Hadley, said his workload picked up this year, but the near horizon is less encouraging.
“So far, we’ve survived the year,” he told BusinessWest. “We’ve been very busy, but we have very guarded profits we have to be careful about, because there’s not a whole lot of foreseeable work right now. Things have slowed down a little bit; my contemporaries are saying the same thing.”
Paul Ugolini, president of Western Builders in Granby, is one of them.
“We’re in the same predicament — we’re having a good year, not bad, we’re paying the bills, but it looks like it’s going to slump off,” he noted. “The way this market is, there’s just not much commercial work out there. It seems like the colleges and universities aren’t spending too much money these days, and that’s a problem for us.”
However, he noted, “we do have some housing backlog. We’re going to be doing four buildings in Holyoke, and there’s some housing in Easthampton we’ll chase — but you still have to land it.”
As for the commercial market, it tends to lag behind single-family homes, Ugolini noted, and builders hope activity starts to perk up soon. “The way this business is, it’s been rough the last few years. It’s just supply and demand — there are a lot of contractors, but not a lot of work.”
Crane said he’s gotten mixed messages from fellow builders. “From what we’ve heard, people are very busy or very slow — there aren’t a lot of guys in between.”
One rising trend has to do with next-generation housing, he noted — “older people moving back in with their kids, kids moving back in with their parents. We just finished one of those up.”
This is more than a localized phenomenon, according to Jed Kolko, chief economist for Trulia Trends.
During the recession, he notes at truliablog.com, fewer households were created than normal. Typically, 1.1 million new households are added each year in the U.S., mostly due to population growth. However, from the first quarter of 2008 to the first quarter of 2011, only 450,000 new households were created annually. “Slower household growth means less demand for homes, so annual construction starts dropped during this period from a norm of 1.4 million to below 600,000. Most recently, only 521,000 households were created between the first quarter of 2012 and the first quarter of 2013.”
RJ Chapdelaine, president of Jos. Chapdelaine & Sons in East Longmeadow — which focuses largely on residential building and remodeling — said business is definitely on the upswing.
“Right now, we’re working on two new homes, and we’ve been working on quite a few additions and renovations,” he noted. “Our kitchen and bath renovations have been very solid, and we’re feeling as though things are heading in a more positive direction. We’re even anticipating starting a new 10-lot subdivision in East Longmeadow. We’ve had quite a lot of good feedback.”
Meanwhile, “I got three calls yesterday for new homes. That, to me, is a good sign — that people want to talk about new homes. It’s very refreshing. Hopefully, it’s a good sign; over the last few years, those calls were more rare, and the fact that we’re starting to get new-home calls and larger remodel jobs is nice.”
Chapdelaine credits a couple of colliding developments — an improving economy giving consumers confidence to make big purchases again, and still-low mortgage rates (and the fear that they won’t stay that low forever).
“I would say some of it is pent-up desire,” he said. “People have been sitting for awhile, and they’re starting to see the rates creep back up a little bit, and it puts them in a position where they feel they need to move because the rates are obviously still at historic lows, and they don’t want to see them creep up to where they were even two, three, five years ago. So they’re thinking it might be time to build or remodel.
Crisis of Confidence
Kolko notes, however, that the housing market has a long way to rebound, and it will — eventually.
“Jobs will help, but the job recovery for young people still has a long way to go,” he writes. “While more young adults are working now than a year ago, their employment rate is still much closer to the worst of the recession than to pre-recession levels. As late as mid-2008, 71% of adults ages 18-34 were employed. That dropped to a low of 65% in mid-2011 and has risen back only to 66.8%. But you don’t get a job one day and move out of mom and dad’s the next. It could still take years before young people have built up the savings and economic security to leave the nest.”
Meanwhile, the commercial sector is still feeling a distinct lack of security and confidence, Marois noted, partly driven by the chaos coming out of Washington, represented most recently by the federal shutdown, and lingering uncertainty over the Affordable Care Act, which will increasingly impact employers in 2014.
“You have to throw into the mix what’s going on in Washington,” he said. “The shutdown has had far-reaching effects, given the fact that we’ve got looming budget cuts, and the healthcare law is starting to look like it will be a problematic program to get initiated. I think it’s going to have an impact on everyone’s confidence going forward with projects. It’s affecting our psyche right now.”
All those factors, layered atop an economy that never returned to pre-recession levels, makes it difficult to generate building activity.
“I’m not too confident in the traditional way we used to do things,” Marois said. “Our way of thinking, running businesses and understanding the economy, seems to be different right now because it’s intermixed with uncertainty over new programs and new regulations. It’s a time like we’ve never seen before.”
In short, largely commercial builders are hoping that they soon begin to see the signs of life appearing in the housing-construction market.
“We’re pretty optimistic. Things seem to be a lot better than they were,” Chapdelaine said, echoing Crane’s perception as he added, “we hear there’s no middle ground; you’re either very busy or very slow. I’m glad to be on the busy side.”
Joseph Bednar can be reached at [email protected]