This story was originally published in Concrete Construction.
There’s a worrisome condition—the proverbial 800-pound gorilla in the corner, if you will—you don’t hear many people talking about when it comes to infrastructure improvement.
It’s debt. Great, big, havoc-wreaking debt, at both national and state levels. And its absence from mainstream attention is disturbing to Mark Boud, senior vice president and chief economist of Metrostudy, a Hanley Wood company.
Mark and his team analyze commercial and residential real estate markets throughout the U.S. Their forecasts are trusted by large construction firms, developers, capital groups, and financial institutions. Mark is regularly quoted in The Wall Street Journal, USA Today, Forbes, and other major newspapers, magazines, and industry publications.
In today’s Infrastructure Imperative Q&A, Mark pulls back the curtain on his economic analyses vis-à-vis U.S. infrastructure spending. His details and supporting evidence, critical for anyone responsible for AEC business planning in 2019 and beyond, are on deck at the Infrastructure Imperative conference in Cleveland on Nov. 13-15.
Concrete Construction (CC): You say debt will be a concern in the future—in what way?
Mark: National debt is ballooning at a rate we’ve never seen before, yet it’s talked about so little. It worries me.
It sets the table for future inflation as the government begins to print money to pay that debt.
It also means the federal government will be in a far less likely position to offer anything with regard to infrastructure. The more debt we have, the less likely the administration will be able to make good on any promises on infrastructural improvements.
So debt is a huge issue, and it puts those states, such as California, that are heavily in debt in an even worse position to meet future infrastructure needs.
CC: With 20 percent of $1 trillion as a carrot, one would think states would start getting their financial houses in order—adopting more fiscally responsible policies. Won’t that be a motivator?
Mark: It should, except that politicians are short-term thinkers; they don’t care about increasing debt in the short term if it gets them elected. Taking care of debt is a long-term solution, and doesn’t really help their election.
There’s a built-in bias in our political system that veers away from longer-term solutions, unfortunately.
CC: What is the No. 1 takeaway AEC professionals will discover from hearing your talk this November?
Mark: The Trump administration’s infrastructure plan won’t happen any time soon. Still, the private sector is anteing up in terms of investment, and the House (likely to be taken over by the Democrats) will begin to move on infrastructure.
Another issue is tariffs. Infrastructure improvements rely heavily on steel and cement—things being most heavily taxed right now, so costs will continue to go up.
CC: When will the spending spigot finally be turned on?
Mark: It’s taking so long to get anything done with regard to infrastructure, my take is it will likely come on line during a time of economic slowdown, which isn’t necessarily a bad thing. Most infrastructure improvements should be made during recessionary years.
Federal dollars are simply a primer. States positioned to take advantage of those dollars will really benefit during the next recession.
I’m hoping the various groups that attend the Infrastructure Imperative will influence their state legislatures, begin to prepare for this because they could achieve a windfall in federal dollars if the state is prepared to receive it. Presently, very few states are.
CC: What regions hold the most promise in terms of housing growth?
Mark: Inland markets of California (like Sacramento and Inland Empire); select Florida markets (such as the suburbs of Miami, Fort Lauderdale, Orlando, Daytona Beach, and Tampa); Atlanta; select Midwestern markets (including Cincinnati, Indianapolis, Kansas City, and Minneapolis); and San Antonio.
Markets currently on fire will continue to experience enormous growth, but at a much greater risk of a correction. These include Austin, Dallas, the Greater Denver region (especially northern Colorado), Wasatch Front (Utah), Phoenix, and Las Vegas.
CC: “Correction”? That doesn’t sound good.
Mark: Housing is cyclical. When the next downturn occurs, these particular states are hanging out there with very high prices and very high supply. They’re primed for a major correction.
Other states, like Florida, aren’t necessarily overpriced. Inland California is in a good position because it’s not oversupplied, nor will it be.
But yes, some states are setting themselves up for a big correction. They’ll be a victim of their own success, whereas other states will have a much softer landing.
CC: How do today’s housing trends bear on public infrastructure?
Mark: Funds will skew toward areas of highest population growth. All the above states will attract public infrastructure, but 80 percent of future spending must come from the states. Again, those most responsibly managed will be in a position to benefit from the federal priming of the fiscal pump.
States in the best position, that will also build lots of homes in future years, include Florida, Indiana, Nevada, North Carolina, Ohio, Utah, and Virginia.
CC: What’s your 30,000-foot assessment of the lending arena?
Mark: Lending will continue to ease for both builders and buyers—not anywhere close to the lax lending standards of the last cycle, but lending competition is increasing.
Mortgages for first-time buyers have been very challenging in this cycle thus far. To keep the cycle going, we need to shift the focus to them. Most are now established in their jobs, they’ve made headway in paying off debt, and they should be able to join the party.
The market is a bit top-heavy now, with far too little housing construction for entry-level homes and far too much for executive move-up and luxury homes.
Don’t miss the opportunity to hear Mark’s full perspective and what the trends mean for your 2019 budgetary decisions. Secure your seat for the Infrastructure Imperative now.
This story was originally published in Concrete Construction.
