Get FinancingTop 10 Reasons Construction Spending Is Exploding in 2018
No doubt about it, 2018 is primed to be the best year the construction industry has seen since before the 2008 financial crisis. Across numerous industries and sectors the stars certainly seem to be aligning to ensure that this year will be even better than last year in the construction industry.
So what’s driving the boom? We’ve compiled the top 10 reasons below that add up to a stellar year for the industry ahead.
10. Tax Reform From Uncle Sam
Revisions to the federal tax code under the Tax Cuts and Jobs Act have small business owners chomping at the bit to make capital investments such as buying new equipment, building new buildings, and kicking off expansion projects as a means of taking advantage of the up-front deductibility of those expenses under the new tax code. According to the National Federation of Independent Business, small business owner confidence hit an all-time high in December of 2017, with over 75% of small business owners planning on expanding their businesses in 2018. Now that small business owners can deduct the full value of any new capital expenditures the year they are acquired, upgrading older equipment and launching new construction projects has never been more attractive.
9. Mother Nature’s Fury
2017 proved to be the most costly year in U.S. history when it came to the fury of Mother Nature exacting costs by way of property damage. According to a National Oceanic and Atmospheric Administration report, weather and natural disaster costs in the U.S. and U.S. territories exceeded $306 billion last year, beating the previous record of $217 billion in 2005 by a wide margin. While of course terrible for victims and costly for those areas and people impacted, the silver lining is that a tremendous amount of rebuilding and repair is stretching into 2018. Thousands of construction projects are still underway or waiting to get kicked off. Billions of dollars from insurance companies as well as from FEMA and other government programs are just reaching homeowner and business owner hands, and rebuilding, repair and restoration projects will be ongoing through this year.
8. Low Unemployment
Government statistics showed Q4 2017 to have the lowest unemployment rates since the late 90s, with barely over 4% of job seekers unable to find full-time employment, according to the most recent government surveys. Consumer spending strength has also returned, with most retailers reporting this past holiday season to be the strongest since before the 2008 season. More than 61% of U.S. households reported having two or more full-time wage earners, the highest number ever. All that buying power translates into businesses expanding to meet consumer demand as well as homeowners having the confidence to make home improvements or remodels.
7. Baby Boomer Boom
Starting last year and accelerating this year, retirees are starting to cash in on long term tax-deferred retirement investments, particularly with stock markets at all-time highs. IRS tax regulations require certain types of investments to be distributed to the retiree before they reach age 71. As more and more retirees begin to approach that milestone and see equities at all-time highs, taking those distributions now makes more sense than ever. That translates into billions of dollars entering the pockets of retirees, with one recent IRS report to Congress estimating that forced distribution of IRA investments would total $1.5 trillion over the next 10 years. That’s $150 billion per year leaving IRAs and hitting bank accounts. Aside from a travel and food, many retirees will look to remodel older homes or buy a retirement or vacation property. Many will also look to invest in rental properties to ensure steady income during and through their retirement. This should translate into billions of dollars yearly shifting from the equities markets and Wall Street over to Main Street industries like construction.
6. Residential Real Estate Boom
In dozens of major metro areas, real estate prices reached all-time highs in 2017. That has developers and homeowners alike pushing a massive increase in real estate building and construction going into 2018. Homeowners want to take advantage of increased equity to finance remodels and additions, and developers are looking to take advantage of higher home prices with new construction projects this year while markets are heated. In a recent online webinar, the National Association of Home Builders indicated that over 70% of its members expect to hire more workers in 2018 to keep up with demand. And with interest rates still hovering at historic lows, there may be no time like the present to take out equity and refinance to cover an add on or remodel (see No. 4 below!).
5. Commercial & Warehousing Boom—The Amazon Effect
More and more, businesses are following the Amazon-ification of everything, which means just-in-time delivery and shipping. From Walmart to Costco to The Gap, retailers across all categories are starting to offer free 2-day shipping and put more of their product catalogs online. But competing with Amazon means that having a single factory and warehouse in one part of the country no longer works. Amazon is famous for mastering the logistics of warehousing and shipping almost anywhere in the U.S. in two days or less, and they did that by building dozens of warehousing and shipping facilities all across the country. Other retailers are following suit, and warehouse and commercial shipping projects are popping up just about everywhere there is an airport or a population center that needs online service. CNBC featured an article recently that indicates wareh