Page 8 - ProInstallerJuly-August 2022

Market Study:

State of U.S. Construction

and Outlook 2022-2023

By Daniel LoBue, Tego Systems Corp.

t has been quite a turbulent six months since our last Commercial Construction
article in January/February 2022. Developments affecting Commercial construction is continuing to trend down
Icost and supply chains such as the Russian invasion of compared to 2020-2021 (after adjusting for construction
Ukraine, expanded inflation to its current 8.6%, the recent inflation at 13%-plus over the last 18 months, the 3-5%
60-day shutdown of Shanghai and rising interest rates growth has remained negative). It has only grown by 3%
require closer examination on how it is impacting the from total construction spending of $488 billion in 2021 to
housing market in the U.S. over the next 18-24 months. $503 billion in 2022 (annualized as of April). Commercial
construction expenditures are still 7-10% below 2019
Residential Housing Construction levels. With the economic outlook pointing to a possible
Single-family housing completions ended at an annual rate recession during 2022-2023, we expect that commercial
of 1,242 units in 2021—a 4% increase compared to 2020. construction activity will continue to moderately decline
Total construction spending in residential housing has as builders and investors will be more cautious and take a
risen to $819 billion, an increase of 34%. We can clearly wait and see approach.
see construction inflation ran up 13.2% in 2021, as tracked
by the Saint Louis Federal Reserve. Since the end of 2021 Construction Cost Inflation
through the end of April 2022, total residential construction
rose to $891 billion on an annualized basis, and factoring in 14.0%
the rise to 8.6% inflation, things remained flat. Residential 12.0%
building permits have started to cool off and have grown 10.0%
only at 5% while housing completions have only increased 8.0%
by 4%, indicating a slowdown is near. We will closely 6.0%
monitor permits and completions going forward. 4.0%
2.0%
0.0%
We continue to experience a severe shortage of housing 2018 2019 2020 2021 2022 Est 2023 Est 2024 Est
due to the shortfall of construction since 2008. The
entire growth of residential housing has come through
multifamily construction, which grew to 592,000 units Public Construction
(annualized April 2022) up from a total of 437,000 units
in 2020—an increase of 36% over the last 18 months. Public construction (after adjusting for inflation) has
Due to rising interest rates, high running inflation (both started to decline even more rapidly, and it is yet to be
construction and general) and persistent inventory seen when the infrastructure bill which was passed last
shortages which keep pushing prices up, some prospective year will have a positive impact. It will eventually increase
home buyers have been forced to rent instead of own. substantially, adding $550 billion over the next 4-5 years.

Comparing the actual numbers one may come to an
Single-Family vs. Multi-Family Permits overly pessimistic conclusion; however total construction
spending grew from $1.345 billion in 2019 to $1.745 billion
in April 2022. After factoring in inflation, expenditures have
grown substantially to where we are today compared to
a normal economic year in 2019. The baseline remains
1200 very strong, as there is still a lot of pent-up demand from
1000 the pandemic-induced slowdown and there are still many
800
600 projects to complete in all three construction sectors.
400 Charts By Daniel LoBue, Tego Systems Corp.
200
0 Inflation, Geopolitical & Supply Chain Issues,
2020 2021 Apr-22 Recessionary Concerns
The Federal Reserve has acknowledged that the current
Multi-Family Single-Family
high levels of inflation at 8.6% need to be reckoned with.
They will continue to raise interest rates until inflation
Continued
8 PROINSTALLER MAGAZINE • JULY/AUGUST 2022