Across the nation, there are cautious signs that the construction and real estate markets might be improving. Construction spending rose this summer and residential building increased, providing some sense that the building market could be rebounding.
In Arizona, unfortunately, the market continues to lag behind national trends. The good news is that this sluggish movement may be part of a healthier long-term picture for the state.
Some construction industry watchers believe that while the Arizona market continues to suffer from a housing glut, there are positive indicators that the Grand Canyon State is on the mend. Or, at least headed in that general direction.
“The needle has not begun to move yet,” says Dennis Hoffman, Arizona State University economics professor with the W.P. Carey School of Business. “We anticipate that we will see some movement sometime soon. But it’s like kids running to the Christmas tree, and there’s nothing under the tree. It’s a timing issue.”
That will change, as revenue from recent taxable retail sales finds its way to state coffers. Hoffman, who has monitored such trends since the tenure of former Gov. Bruce Babbitt, says that while it may take months to see results in the market, the pace of increase is likely to move in a positive direction.
“Arizona tends to follow national trends. Unfortunately, there’s going to be a bit of a lag,” says Hoffman.
The state’s construction employment peaked at more than 244,000 jobs in the summer of 2006, and dropped to about 141,600 in June 2009, according to state and federal data.
Carol Floco, executive director of the American Subcontractors Association of Arizona, reports that the construction market is still struggling.
“Overall, we’re seeing the book of work for the majority of our members getting tighter and tighter,” she says.
John Yoder, with Star Roofing in Phoenix and past president of the American Subcontractors Association of Arizona, adds that while national news suggests improvement in the market, contractors and subcontractors remain at a standstill.
“‘Better’ is a matter of degree,” Yoder says. “(The market) is certainly not better than it was two years ago… From a company standpoint, we don’t anticipate any turnaround until sometime next year.”
Still, there are signs of hope, says Hoffman.
For one thing, government stimulus funding has provided new opportunities, both for construction-service providers, homeowners and the state’s universities. “I think absolutely what people have to do right now is figure out where the stimulus money is going for infrastructure, and leverage off of it,” Hoffman says.
For example, federal funding available for educational research will reach about $55 billion during the next two to four years – a jump of approximately 15 percent over previous periods. However, while funding levels have increased, competition for that money has shot up as well.
At ASU, officials hold regular confabs to discuss ways of securing more of that funding. The universities, Hoffman says, “have to tap into these grants – literally, as many as humanly possible. We have to redouble our efforts in those areas.”
Construction-service providers, too, would do well to focus on opportunities related to stimulus assistance.
Hoffman cites tax credits available for energy-efficient home improvements and says smart subcontractors will research stimulus availability and specialize in related areas.
“Small projects can add up,” says Hoffman. “Subcontractors have to be very savvy. The person who knocks on my door has to understand about credit (programs).”
One of those programs – a tax credit for 30 percent of the cost of energy-efficient doors and windows, insulation, air conditioners, furnaces, heat pumps and boilers, up to a lifetime cap of $1,500 – is available for 2009 and 2010.
One problem, however, is the pace of availability of stimulus funding.
Brian Livingston, assistant director with the Arizona Registrar of Contractors, says contractor-licensing renewals have dipped recently, while interest in new licenses has increased, suggesting that more people believe the time is right to start their own firms. But government assistance remains a question.
“I think hope is apparent,” he says. “But there’s uncertainty as to when stimulus money will be available to start a business.”
Another reason for the slower renewal of Arizona’s market is the large overhang of new homes waiting for buyers. But even that pace may pick up before too long.
Other Southwestern locales are beginning to see some movement.
Cindy Vogel, owner of the Sierra Plan Room, a firm providing construction information on Las Vegas, Nev., reports a recent increase in home sales.
“Things seem to be picking up,” she says. “There are homes available here for under $100,000. And there’s a lot more remodel work going on. Subcontractors who say they haven’t seen a check for three months are now seeing more money coming in.”
That will eventually be the case for Arizona, says Hoffman.
“There are going to be many opportunities going forward,” he says. “People will continue to seek out Arizona as a place to spend a lot of time and money, and the homes will need to be here. Fortunately for some, those homes are very affordable again. The growth cycle will repeat – it’s hard to break that down.”
Staying afloat in rough waters
Steps construction companies and subcontractors can take to remain viable, until the situation improves:
• Trim operating costs. “To survive, I think, everyone is doing everything they can to slim down operations,” reports John Yoder, past president of the American Subcontractors Association of Arizona. “Costs need to be cut wherever they can be.”
• Focus on niche markets. “Where we see companies getting into trouble is when they move into areas they are not familiar with,” says Yoder.
• Build relationships. Use this time to network and to improve relationships with clients.
Invest in improving education for employees.
• Stay ready. Continue to train and prepare for market improvement.
• Maintain a positive attitude. “This is the worst recession of the postwar period, but even the Great Depression came to an end,” says Dennis Hoffman, economics professor with the W.P. Carey School of Business at ASU. In many instances, he says, there are hopeful signs in the market. “In many respects, people are being presented with once-in-a-lifetime opportunities.”