Hot Commercial Markets for 2005
Look for health care, K-12 and higher education to be among the hottest markets for design and construction firms in 2005, according to ZweigWhite’s 2005 AEC (Associated Estates Realty Corporation) Industry Outlook: Strategy and Insight for Design & Construction Firms.

 The AEC business has outperformed the U.S. economy as a whole in recent years, including in 2004, and the general opinion of the design and construction industry is that 2005 will yield similar results. In a survey conducted in conjunction with the ZweigWhite report, 40% of respondents expect the AEC business to outperform the U.S. economy this year, while only 20% expect it to lag behind the economy.

Respondents say that 2004 produced strong results for their firms, and predict their businesses will improve in 2005. Fifty-seven percent expect their businesses to be "outstanding" or "excellent" in 2005, an increase from the 47% who note their businesses have been "outstanding" or "excellent" in 2004.

The survey also asked respondents to rank 25 markets in terms of their expected strength in 2005: health care, K-12 schools, and higher education came out on top.

Health Care. In addition to the design and construction leaders who ranked the health care market first, the U.S. Department of Commerce projects that health care construction put in place will grow 7.9% in 2005, the fastest of any market sector. The needs are high, and the money is there. Double-digit increases in health insurance costs are providing capital, and an aging population and advancements in technology are increasing demand.

K-12. Demographics, voter-approved bond measures, strong property tax revenue and court-mandated programs will make the K-12 market one of the strongest in 2005. Many school systems in the South and West will need to expand to deal with rising populations, while changes in school-finance formulas in some state have led to court-ordered school construction programs in poorer, urban districts.

Higher Education. Higher education construction is at an all-time high. With the "baby boom echo" on its way, colleges and universities will need to upgrade and expand residence halls and educational facilities to deal with the population surge. Improvements to state budgets and a rebounding stock market will help financing. For more information: www.zweigwhite.com/store/outlook05

Help Tsunami Victims Rebuild Their Homes
Many NAHB members already have responded to the devastating earthquake and tsunami disaster in South Asia by generously giving to numerous relief agencies that are providing vital emergency assistance to the survivors. As the relief effort continues and moves from the acute, emergency phase into recovery, the home building industry is rallying to address the longer term need for temporary and permanent shelter in the tsunami-affected nations.

Over the years, NAHB and its members have united to help those in need, demonstrating time and again that Home Builders Care, a philosophy as well as a call to action that is emblematic of the industry's commitment to community service and charitable causes.

In response to what will be an overwhelming need for permanent shelter, NAHB and the National Housing Endowment have established the Home Builders Care/National Housing Endowment-Tsunami Shelter Fund to raise desperately needed funds.

With an initial donation of $250,000, designated by the NAHB Board of Directors at the International Builders’ Show, the fund will be directed to rebuilding efforts that provide temporary and permanent shelter for survivors.

 Please help by making a tax deductible donation to the Home Builders Care/National Housing Endowment-Tsunami Shelter Fund. Money raised by the National Housing Endowment will be granted to one or more U.S. charitable relief organizations working to help tsunami survivors obtain temporary and permanent shelter.

Please direct your donation check to:

National Housing Endowment
1201 15th Street NW
Washington, D.C. 20005

Checks should be made payable to the National Housing Endowment and, in the memo section, please note the Tsunami Shelter Fund.

The NAHB Senior Officers have asked Past President Bob Mitchell to guide this fundraising effort. Bob is working with a staff team that already has begun meeting with organizations that have established relief efforts in the affected nations to determine how the money raised can best be distributed to provide for temporary and permanent shelter. Money raised by the National Housing Endowment will be granted to one or more U.S. charitable relief organization working to help tsunami survivors with shelter needs.

For more information, contact Troy Patterson at the National Housing Endowment at 800-368-5242 x8483 or Kym Kilbourne in NAHB Public Affairs, x8447. [return to top]

Good News on Storm Water Regulation
Changes sought by NAHB in litigation settlement negotiations with the Environmental Protection Agency (EPA) were finalized in December and will eliminate a range of storm water violations for construction site operators who are not covered, or not yet covered, by construction general permits (CGPs).

NAHB contended that site operators should not be considered to be in violation of the permit before they have submitted a notice of intent (NOI) to obtain one, and EPA has addressed that concern by removing the words “permit noncompliance” from its CGP language.

In areas where the EPA has permitting authority, the CGP grants permission to discharge storm water and allowable non-storm water discharges for operators of both large and small construction activities.

“The fact that an operator fails to make itself eligible for CGP coverage should not make it subject to potential enforcement action for noncompliance with a permit to which it was never subject,” the agency stated in the Dec. 22, 2004, Federal Register.

The EPA’s final notice of the modifications notes that operators are not prohibited from submitting NOIs after initiating clearing, grading, excavation activities or other construction activities, but the agency “reserves the right to take enforcement action for any unpermitted discharges that occur between the commencement of construction and discharge authorization.” EPA also asserts the right to take enforcement action against construction site operators who do not file an NOI before beginning construction, even where there is no discharge of storm water.

The agency added that the latest modifications “represent an important step in reducing EPA’s concern that retaining the current ‘permit noncompliance’ language would potentially make the CGP option more unpalatable to late filing operators than necessary, thus, driving late filing operators toward either individual permits or attempts to evade regulation altogether by declining to notify EPA of their construction activities.”

By pushing late filers toward seeking coverage under individual permits rather than the CGP, the EPA said it was also concerned about “further delays in permit coverage and the environmental benefits associated with implementation of the best management practices.”

On modifications initially proposed in September, the EPA received responses from NAHB, The Associated General Contractors of America, Centex Homes, Lennar Corporation, Pulte Homes, Richmond American Homes of Colorado and the New York State Department of Environmental Conservation. All of the comments, except for those from New York, supported the changes.

The permit modification went into effect January 21.

For further information, e-mail Tom Ward at NAHB, tward@nahb.com, or call him at 800-368-5242 x8230; or contact Amy Ericksen, aericksen@nahb.com, x8662. [return to top]

Demand for Rental Housing Poised for Improvements in 2005
With jobs getting back to pre-recession levels and the nation’s workforce continuing to grow, the coming year promises to be favorable for the rental multifamily market, according to economists at the International Builders’ Show last month in Orlando, Fla.

Condominiums, which surged last year and bolstered multifamily production during a period when rental vacancy rates were near record highs and rent concessions were commonplace, are expected to continue to gain ground, heading to almost one-third of the market.

“This year will show good economic and job growth, which is good news for rentals,” said NAHB Chief Economist David Seiders. “Vacancy rates will fall, and absorption rates will rise.”

Seiders said that demand for multifamily rentals will receive a bit of a boost from slowly rising interest rates that will push up monthly mortgage payments enough to slow the recent flow of renters into homeownership.

While multifamily production has remained remarkably steady and healthy for the past several years, vacancy rates last year rose to their highest levels since the early 1990s, when the industry was in recession. For buildings with five or more units, they reached a peak of 12% in the second quarter, according to the Census Bureau. Vacancies in these buildings shifted down in the second half of 2004, but remained at a relatively high 11.5%.

Housing analysts expect gradual improvement in vacancy rates as the year progresses, but cite wide regional and local differences in the strength of demand for multifamily rentals. Demand has tended to be strongest in California and the mid-Atlantic region — including markets where the cost of owning a home tends to be particularly high — and weakest in the Midwest.

Among the nation’s 75 largest metropolitan areas, those with the worst overall vacancy rates for all multifamily units in 2004 included: Columbus, Ohio, 18.8%; Atlanta, 18.5%; Raleigh-Durham-Chapel Hill, N.C., 18.1%; Akron, Ohio, 17.5%; Oklahoma City, 15.8%; Houston, 15.7%; Chicago, 15.4%; Norfolk-Virginia Beach-Newport News, Va., 14.8%; Dayton-Springfield, Ohio, 14.8%; Denver, 14.5%; and San Antonio, 14.5%. 

Lowest vacancies were in: Orange County, Calif., 3.6%; Ventura County, Calif., 3.7%; Bergen-Passaic, N.J., 3.8%; Los Angeles-Long Beach, 3.8%; New York, 5.2%; Sacramento, Calif., 5.7%; Middlesex-Somerset-Hunterson, N.J., 5.8%; Honolulu, 5.8%; Riverside-San Bernardino, Calif., 6.0%; Fresno, Calif., 6.0%; and Boston, 6.0%.

Ron Witten, of Witten Advisors in Dallas, is bullish about prospects for the multifamily industry in the year ahead. Demand for rental units has started growing faster than the pace at which they are being produced for the first time in years, he said, and that should push overall increases in rents into the 3%-4% range this year.

The for-sale share of the multifamily market, now 30%, is at an all-time high, he said. [return to top]

Look for Double-Digit Increases, Say U.S. Contractors
Contractors in the United States are undercharging customers, at the risk of their own business' success, according to the second annual Intuit Construction Business Solutions industry study.

Half of the contractors surveyed report they regularly leave out general conditions costs such as supervision, phone calls and temporary power from their job estimates, depriving themselves of deserved revenue and gross profit. Respondents seemed to recognize this tendency, citing greater job profitability (65%) and more accurate estimating (57%) as the areas of their business needing the most improvement.

Despite the obstacles in managing their businesses, contractors surveyed estimate their current gross profitability per job at 15.5%and anticipate double-digit industry growth (12%) over the next five years.

To meet growth projections, 66% of respondents said they would hire additional field employees. At the same time, nearly as many (65%) said hiring quality employees was the greatest challenge in the labor force. And when asked to name the most frustrating aspect of managing a contracting business, 50% of respondents cited scheduling labor and managing work crew productivity.

"Business growth is not simply about hiring more employees and winning more jobs," said Intuit president Carol Novello. "Success in today's unpredictable economic landscape depends on effectively managing your business and crews to continuously uncover costly inefficiencies and new revenue opportunities.

"This study shows that the construction industry must make managing profitability and productivity a priority to ensure business success. The successful companies are those that strike a balance between trade expertise and business acumen," she said.

Companies posting revenue of $10 million or more per year were the most successful, according to the survey. They have been in business longer and have adopted an integrated business management approach to manage their profitability and productivity. This approach combines critical business functions, such as estimating, scheduling and accounting, instead of using disparate solutions and systems.

The study — conducted for Intuit by independent research firm Decipher — surveyed more than 500 U.S. commercial and residential contractors and subcontractors. For more information: www.intuit.com [return to top]

I, Concrete
Researchers at the University of Southern California are developing a robotic device that will place concrete without human labor. Lead by Professor Khoshnevis of the Department of Industrial and Systems Engineering, the USC research team has devised a machine guided by computerized drawings. A computer-guided nozzle squirts plastic concrete in a toothpaste-like shape in successive layers to form walls and domed roofs. Trowel-like attachments shape the concrete after it's extruded. Funded partly by the federal government and partly by Degussa, the USC team hopes to build a concrete-house with the device later this year. The technology is called Contour Crafting.

For more informaton, visit ContourCrafting.org.

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Steel Prices Rose 48% in 2004
Citing the latest Producer Price Index, the Portland Cement Association reported in the January 21 edition of the online PCA Executive Report that steel prices climbed more than 48% in 2003. That makes the rise in lumber and concrete products during the same time period —7.3% and 7.8% higher, respectively — seem small by comparison. Asphalt pricing is 4.3% higher than the previous year.
 
The source of these data is the Department of Labor, Bureau of Labor Statistics. For more information: www.cement.org/exec/01-21-05.htm#1. [return to top]

CLRC Releases Craft Labor Supply Outlook for 2005-2015
A large number of new entrants will be needed into the construction trades over the next 10 years, according to the Construction Labor Research Council’s (CLRC) latest Craft Labor Supply Outlook. Using data from the Bureau of Labor Statistics (BLS), CLRC estimates that 185,000 craft workers are expected to enter the work force between 2005 and 2015. Needs will be almost evenly divided between growth and replacement.

Like other industries, construction will be significantly affected by an increasing number of older workers leaving the labor force. The number of young workers available to replace them will be little changed throughout the period. As this also affects all industries, the construction industry will be challenged in attracting an adequate supply of qualified new entrants, says CLRC. Furthermore, because the working life of construction workers is shorter than that of workers in many other occupations, the demographic trends are impacting construction earlier than other industries. However, the construction industry can point to having increased its employment during the 1990s at the same rate as the service sector of the economy. A large influx of Hispanic workers appears to have been a key factor in meeting this demand, suggests CLRC.

Other factors will influence whether construction will be successful in attracting the new entrants it requires in the next decade. Productivity gains and training can moderate the estimates. Furthermore, CLRC reports, BLS estimates of replacement needs appear conservative and may, therefore, underestimate the number of required new entrants. [return to top]

Spring Board to Cover Array of Issues
April 13-17, 2005
Marriott Wardman Park Hotel
Washington, DC

The NCBC Welcomes Newest Members

The NAHB National Commercial Builders Council would like to welcome all new members who joined between November 2004 and January 2005:

Member Advantage — Get GM Discount Pricing on More Than 80 GM Vehicles
GM is offering preferred supplier discount pricing on more than 80 General Motors vehicles, including Chevrolet, Pontiac, Buick, GMC, Oldsmobile, Cadillac, Saturn, HUMMER (except H1) and Saab passenger cars, light duty trucks, vans and SUVs as part of NAHB’s Member Advantage discount program.

Through the program:

• NAHB members get Preferred Supplier Pricing on all eight GM nameplates.
• NAHB members can realize the benefits of other GM offers in addition to the supplier price.
• NAHB members will receive their authorization codes and program details via direct mail from GM.

For complete details, go to www.gmfleet.com/nahb. The GM Preferred Supplier Pricing program runs through Jan. 3, 2006.