Very fast growth in multifamily activity has been pushing up overall construction spending. Jobs in the construction sector have yet to match the rise in spending dollars, however. Given the general lagging impact on jobs, construction job growth looks to perk up in upcoming months.
Numerically, overall construction spending climbed in July and is now higher by 8.2 percent from one year ago. Spending for multifamily construction (apartments and condominiums) increased by a whopping 41 percent, to the point of closing in on a cyclical high. Spending for single-family construction, however, has been uninspiring, rising by 9 percent, well below the recent peak.
Spending for commercial real estate (classified as nonresidential) rose by 14 percent and has been making steady progress.
From the recent lows in 2010, overall construction spending has risen by 22 percent. But construction jobs have increased by only 10 percent. Put differently, each construction worker accounted for about $14,000 to construction spending few years ago. Now, the figure has risen to over $16,000. Evidently, some of the underutilized construction workers are being asked to do more with the pick-up in the economy. Inevitably though, job growth will have to catch up with spending.
Spending for roads and highways are vital for healthy interstate commerce. But the highway trust fund is running out. Congress will need to reauthorize a special funding in a few months. This issue in itself should be non-controversial since highways are what economists call a “public good” where everyone could potentially free ride. That is, irrespective of who pays, non-payers can still use the highway. Therefore, a minor tax collection from all that helps with the cost is a sound policy. (Just as in the case of fixing potholes within neighborhood roads with homeowner association fees). Unfortunately, the trust in government has fallen so low that taxpayers simply do not believe that the money will be wisely spent by Washington bureaucrats.
Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.