Executive summary from UHERO
Construction turned the corner in Hawaii last year after five straight years of contraction. We are now seeing impressive gains in percentage terms for private building permits, although these are starting from very depressed levels. Home building, retail and visitor industry upgrades, the ongoing boom in photovoltaic installation, and, yes, rail, will combine to drive a strong industry expansion over the next several years.
• Residential construction ticked back up last year. With interest rates remaining at very low levels, foreclosure activity abating, and economic fundamentals strengthening, we now expect housing construction to pick up sharply this year and next, if remaining well off the levels of activity seen at the last home building peak.
• The value of real non-residential permits will rise more than 25% this year, following last year’s 50% surge. This represents a fairly substantial upward revision from last year’s forecast, with the difference largely reflecting the extraordinarily high level of activity we are seeing in the PV industry. But commercial construction is also expanding and will play a growing role.
• Aside from rail, publicly financed construction will be only a middling contributor to growth over the next several years. Public contracting will slowly edge back toward the $1 billion per year level. That is roughly in line with levels seen in the 2000s, and is insufficient to make a meaningful dent in the state’s public infrastructure shortfall.
• Total real private permits have now recovered to nearly 2008 levels, but this is still less than 60% of their value at the last cyclical peak in 2005. That will change in a hurry over the next two years. Real commitments to build, including government contracting, will rise 23.5% this year and more than 20% in 2014. The construction job count, which averaged 29,500 in 2012, will rise to 31,600 this year and to 38,600 by 2015 when both rail and the next housing upswing will be in full swing. The inflation-adjusted general excise and use tax base for contracting will see gains in high single- digit to double-digit range.
• The federal spending sequester that began March 1 poses some risk to the construction forecast. But the direct impact on local construction appears to be limited. The Federal Reserve is committed to low interest rates as long as inflation cooperates. In any case, construction and the general Hawaii economy are gathering a head of steam and should overcome the moderate inertia coming from public sector retrenchment.
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The crisis is slowly coming to an end and everything will pick up, including construction. I'm sure in a few years we'll see huge progress.
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