Home > Uncategorized > The Economic Toll On The Construction Industry

The Economic Toll On The Construction Industry

In an economic downturn, the construction industry is often hit harder and longer than other industries with decreases in demand, funding, and development. When relatively large portions of our population are facing issues like foreclosure and bankruptcy, it can be difficult for investors and builders to justify the construction of new homes or businesses. Even once other sectors of the economy begin to recover, the construction industry is often the last to improve as buyers and financers become more frugal and less willing to take a risk on an investment.

According to a report in the Sacramento Business Review, the US Census Bureau reported that the vacancy rate of buildings in the Sacramento area reached 7.4% in 2009, and has likely risen even higher since then. Additionally, Sacramento was listed in the top 10 cities for foreclosures at the end of last year. Given the excess supply of empty buildings in our city, it is not surprising that construction virtually ceased altogether when the recession hit. Unemployment in the construction industry has hovered at a national average around 20%, compared to about 9% nation-wide across all industries. In 2005, construction jobs comprised 8.6% of Sacramento’s payrolls; today that figure has fallen to only 4.3%. In fact, Forbes Magazine ranked Sacramento as the fifth worst city for unemployment in the country, a negative designation it attributes to the slow recovery of the construction industry here.

In light of these statistics, one might look around the city of Sacramento and expect to see hundreds of forlorn-looking abandoned buildings, not the giant construction tower cranes which have obscured the skyline in many parts of the city in the past year. Until recently, these cranes provided a beacon of hope that, despite the extended hiatus from most building projects, Sacramento’s construction industry was slowly beginning to turn around as a product of federal and state funding into New-Deal-esque public works programs.

So far, these public works projects have infused the local economy with more than $4 billion in development, mostly centered on four areas: the rail yard and Township 9 in downtown Sacramento, the Bridge District in West Sacramento, and the Curtis Park Village in the neighborhood of Curtis Park. According to the Sacramento Business Journal, the four projects were primarily funded through infrastructure bond programs administered by the Department of Housing and Community Development and additional public subsidies. The projects created thousands of construction jobs in our community using public funding. In turn, the development and construction in these four areas was intended to spur demand for other private construction around the newly revitalized parts of the city.

 

As a product of some tacked-on additions to the state budget passed at the end of June, however, the construction on these areas of our city has screeched to a halt. The new state budget laws effectively dissolve four hundred redevelopment agencies in the state, including those responsible for the public works projects here in Sacramento. Under the law, these agencies can only remain in existence if they agree to pay a portion of their financial resources, a yearly total of about 1.7 billion dollars statewide, toward schools and other public programs. In the current economic climate in which these revitalization projects have been struggling to succeed, this additional taxation could be an insurmountable challenge to the revival of the construction industry in Sacramento.

John Shirey, executive director of The California Redevelopment Association, stated an intention to sue to maintain funding for redevelopment projects and to block implementation of the new budget laws before they take effect on October 1 (see the Sacramento Bee article linked below). State legislators, in contrast, maintain that the state budget deficit does not leave room to fund redevelopment construction projects at this time. It remains to be seen which side of this debate will come out on top. Those tower cranes, once emblematic of hope and revitalization in our community, may now stand unused until the state budget becomes better balanced or until Shirey and others can convince the California Supreme Court of the importance of their projects.

To see the Sacramento Business Review report, go here.

View the Sacramento Bee article on the budget laws here.

For the Forbes Magazine ranked list of cities with the worst job markets, go here.

And to see the Sacramento Business Journal’s report on the public works programs, go here.

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Categories: Uncategorized
  1. BB
    August 12, 2011 at 10:01 am

    This is a very well written and well researched article. It is cool that you guys hired someone to write about the local construction market in such detail. That being said however, I do have to disagree with the Keynesian viewpoint the author seems to take.

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