While the construction industry was hardly a major issue in the recent presidential campaign, there are many upcoming issues that will affect the future direction of building activity. Some of these will influence the direction of the broader economy, thereby influencing demand for nonresidential facilities. Others will directly affect nonresidential activity. While yet others will determine the strength of the housing recovery, which in turn has a direct bearing on what happens in the nonresidential markets.

The overall economy has been growing at a very sluggish pace, with payroll increases barely sufficient to accommodate the growth in the labor force. However, there is optimism that the pace of economic growth can increase if we can solve some key issues. At the top of the list is dealing with the “fiscal cliff,” the combination of around $400 billion a year in expiring tax cuts and $100 billion a year in federal spending cuts that would have likely sent the economy into recession if nothing had been done. The good news is that both parties avoided what would have effectively been an across-the-board series of tax increases and spending cuts that would’ve decimated defense spending as well as other discretionary federal programs.

Dealing with the fiscal cliff was just step one in developing a grand compromise in Congress for the growing federal debt problem. The current debt burden and annual deficit levels are unsustainable and will need a comprehensive bipartisan solution.

While the federal institution that has been the most aggressive in dealing with this economic downturn has been the Federal Reserve Board, future Fed actions are uncertain. This situation is clouded by the fact that Chairman Ben Bernanke’s term expires in January 2014, and he has indicated that he is not looking to be reappointed. Under new leadership, it is unclear what actions the Fed might take to manage monetary policy.

While not on the radar during the presidential election season, the recovery of the nonresidential building sector is key to stronger economic growth. Construction commodity costs and energy prices are critical to the construction outlook, and given that many construction materials and much of our energy is imported, trade policy and international tensions can have a dramatic effect on the price and availability of these products. Also, as we saw with Hurricane Sandy, natural disasters can dramatically affect the supply chain for many products and potentially disrupt major industries.

Buildings and homes are major energy consumers, so any national strategy looking to achieve energy independence must have programs in place for both the construction and retrofit of buildings. We are likely to see renewed interest in an energy-efficient building program.

In terms of a residential recovery, it is surprising how small a role housing played in the national elections given the outsized role this sector played in the international financial meltdown, and the role it traditionally plays in an economic recovery. Even though significant progress has been made, there are still more than 1.5 million mortgages in the foreclosure process and an additional nearly 1.5 million mortgages that are 90 days or more past due and at risk of foreclosure. These distressed homes are holding down housing prices and limiting a stronger economic recovery.

Years after the housing bust, we’re still trying to figure out the appropriate role for government in the housing finance system. Many of the Dodd-Frank regulations, with respect to home mortgages, have not been implemented. The ultimate resolution of Fannie Mae and Freddie Mac has not been resolved.

In an effort to cut government spending to manage the federal debt, a growing number of tax preferences are being discussed. Near the top of the list is the mortgage interest deduction, which allows taxpayers to deduct most, if not all, home mortgage interest payments as well as interest payments on home equity loans and lines of credit. Together, these tax preferences cost the government around $100 billion a year in foregone payments. A related tax preference, the deductibility of local property taxes, costs the government another $25 billion a year.

Finally, it is clear that the federal government needs to reform its immigration policy. While immigration policy is not a housing issue, per se, the immigrant population is a very large source of housing demand in the U.S. and, traditionally, a large segment of the residential construction labor force. Moving forward, housing demand would fall dramatically without strong immigration numbers.

The construction outlook looks very promising for 2013. The housing market is rebounding nicely, and commercial, industrial, and institutional buildings will follow suit as long as our economy is growing. However, there is more than the normal amount of uncertainly in terms of federal policy that will greatly influence this outlook. There were hopes that the presidential and congressional elections would resolve many of these issues. We now know they just delayed the inevitable negotiations that, hopefully, can at last begin in earnest. —Kermit Baker, Hon. AIA.