The Garrison Report #2008-1

2008: Predictions for the New Year
Are You Prepared for 2008's Changes?

Listen to the audio version of this report here

This past year while traveling around the country or conducting my radio interviews, the constant topic was change. It didn't matter whether I was talking with consultants, authors, professors, contractors, vendors or building owners. The only variation was perspective and priority.

Last year's predictions were fairly accurate, but I must admit they weren't very bold. This year I'm not going to predict a labor shortage because everyone already knows that. Instead I will stick my neck out to peer over the horizon at little further than most.

Residential Construction

My prediction for 2008 is that new home sales will remain in the 1 million to 1.1 million range unless homebuilders lower their costs by 20 to 25 percent of their current areas' average construction costs.

With November 2007 annual sales at only 647,000 units, it's obvious the industry has problems. House prices are unaffordable. For the past 10 years, the U.S. average annualized home sale prices have increased by 11.3 percent. They've gone up 12.1 percent during the past five years. Those figures absorbed this past year's decline of 6.6 percent.

For homebuilders to survive, they must reduce their costs and make their operating processes more efficient. One builder I know reduced his 2005 price of $249,000 to $199,000 while increasing his profit margin.

If individual homebuilders can reduce their housing costs to affordable levels, they will see their sales improve. If enough homebuilders achieve this goal, then the industry will exceed the projected 1.1 million sales in 2008.

Infrastructure

My prediction is that in 2008 the United States will see additional infrastructure failures, but sadly not enough will happen. The Minneapolis bridge collapse was a wake-up call, but someone hit the snooze button.

Granted, additional money and effort is being spent, but it's more about activity than true results. The U.S. Department of Transportation reports it's making progress because between 2000 and 2007 it reduced the number of structurally deficient or functionally obsolete bridges from 167,581 to 152,428. At that rate it will take more than 70 years to complete all the repairs, but that's scary when you consider the I 35W bridge was less than 30 years old when it collapsed.

ACE Mentor Program

My prediction is that the ACE Mentor Program will break through and penetrate more than 100 cities by the end of 2008.

ACE is currently in more than 80 cities and has more than 30,000 high school students participating in the program and continues to grow. While many others talk a good game about the labor issues facing the construction industry, the ACE team is actually doing something about it with some very encouraging results.

Broken Buildings, Busted Budgets

During 2008 the current trends toward integrated project delivery and greater use of technology will move beyond the industry's innovators and move into areas that have often resisted change.

The intensity of the debate about how to solve the industry's problems is increasing. Barry LePatner's book Broken Buildings, Busted Budgets is a perfect example of increased dialogue. Some agree with LePatner and others disagree with his reasons for the problems and solutions, but the important thing is his book is stimulating debate. More and more trade association conventions are having panel discussions consisting of owners, contractors and industry experts to discuss the issues facing the industry. This debate is essential for the trends to continue because the late adopters require proof and examples of success before they will change their ways.

Nonresidential Building Construction

Nonresidential building construction, after reaching record levels in 2007, will slow down off those peaks by 3 to 5 percent during 2008.

Similar to the residential market, the nonresidential building construction will hit a barrier because of rapidly rising costs over the past several years. For example, schools in Florida were costing about $125 per square foot in 2005, and now they are up to $300 per square foot. Hospitals in California are costing $1,000 a square foot.

Owners and contractors have two choices if projects become too costly. The obvious is to postpone the project. The second alternative is to find legitimate ways to reduce projects cost through greater collaboration and communication to eliminate the waste in the current processes. Wages and material costs will continue to increase; therefore, the industry must streamline the construction process in order to increase productivity.

And those are my predictions for 2008!

 

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