The building and construction industry will probably enter a period of prolonged pause.
This conclusion is based on my participation and/or attendance in panel discussions, conferences, and events centered around housing, construction, and real estate in recent weeks.
The reasons for this include the following, in no particular order:
1) increased labor costs
2) increased material costs
3) increased costs of regulatory compliance
4) declining rents/leases
5) higher interest rates
6) unfavorable comparative risk (T-bills)
7) general uncertainty
It's a bit of a perfect storm.
Further evidence: the lowest AIA ABI (architectural billings index) since 2008 was released last month. The ABI measures architectural activity, a bellwether for construction activity, since architectural activity necessarily precedes construction.
To clarify: I don't know how long 'prolonged' is.
To further clarify: this prolonged pause will primarily affect commercial real estate (which in the US, quizzically includes multi-family housing).
To further, further clarify: geography is a factor in all but the last three of the above reasons. The Red State - Blue State divide here is an easy straw man to attack.
Capital-A "Affordable housing" (which paradoxically costs more to build than market-rate housing) is its own development category in the US and may be exempt from this pause. That's the subject for a different post.
Institutional work is relatively insulated from the above market factors.
We may assume that a governmental open market operation, sufficient to correct for the above factors (akin to 2008 quantitative easing, but for construction and real estate), is unlikely, but possible. Say 5%? Is anybody even talking about the potential mechanisms for this? California seems to be trying (see: Home rule vs Dillon's rule). . .
An important caveat: I could be wrong.
The next thing to consider, for those running AEC (architecture/construction/engineering) or real estate businesses, is strategy.
The two strategy bookends are:
1) Contract and cut costs ("Survive until 2025")
2) Strategically invest for capabilities and positioning when activity resumes (Buffetian "value investing")
Some combination or blend of the two strategy bookends is what most businesses will need to manage in the short-to-mid term.
It seems likely that, as with the conclusion of other cyclical periods of downturned activity, emerging and surviving businesses will have increased productivity gains as a result of efficiencies and investments gained during this prolonged pause.
Differentiators may be, as always but more acutely than usual: talent, technology, and market positioning.