091814 the Twists and Turns of Education Construction Spending

8/11/2019 091814 the Twists and Turns of Education Construction Spending

1/5

ECONOMICOUTLOOK

12

CONSTRUCTIONEXECUTIVE

|S

EPTEMBER

2014

By TheNumbers

The cumulativedecline in K-12 schoolconstruction is nothingshort of shocking.

It is said that demographics isdestiny. Perhaps no segmentof the nations nonresidentialconstruction sector providesas powerful support for thisstatement as education.

At least some of the recentdecline in education-related con-

struction is attributable to shifts instudent population. Americas pop-ulation is punctuated by two largegenerations: the baby boomersand their children, often referredto as Generation Y, millennials orthe baby boom echo (presentlybetween the ages of 14 and 34).

As an example of how powerfulthese demographics are, K-8school enrollment decreased 0percent, 0.2 percent, 0.3 percent,0.3 percent and 0.1 percent perannum from 2005 to 2009,according to McGraw-Hill

Construction. It comes as littlesurprise that K-8 construction hasbeen suppressed ever since.

On the other hand, many ofthose who have graduated from ele-mentary, middle and high schoolsare now in college. As such, duringthat same time period, college anduniversity enrollment expandedby 1.2 percent, 1.6 percent, 2.8

percent, 4.7 percent and 6.9percent, respectively. e largeincreases registered during 2008and 2009 reflect another factor: theGreat Recession.

As a result of more youngpeople deciding to enter or remainin post-secondary settings rather

than testing the labor market,construction spending has demon-strated far more stability in highereducation categories. According toMcGraw-Hill Construction, col-lege and university constructionstarts dipped after 2008, and by2012 the volume of constructionstarts measured in square feet hadfallen back to 2005 levels.

e decline in K-12 school startswas far more severe. Constructionstarts peaked in 2001, when

Generation Y would have beenbetween the ages of 3 and 23. Atthat time, K-12 starts measured insquare feet began to decline, largelybecause of the fiscal aftermath of the2001 recession. By 2004, construc-tion starts had stabilized, but as theGreat Recession dawned, a steeperdecline took hold. By 2012, thevolume of K-12 construction startshad fallen well below the 1990 level.e cumulative decline in K-12

school construction is nothing shortof shocking. In 2001, constructionstarts in this category approached200 million square feet. By 2012,construction starts had declined toroughly 75 million square feet.

e Tide TurnsWith the Great Recession nowfive years in the rearview mirror

BY ANIRBAN BASU

The Twists and Turns of Education

Construction Spending

Second quarter increasein nonresidential fixed

investment

5.5%

Second quarter increasein nonresidential

construction backlog

5.4%

Monthly decreasein nonresidential

construction spendingin June

2.8%

Number of nonresidentialconstruction jobs

added in July

6,600

Sources: U.S. Department of Labor,

ABC Construction Economic Update,

ABC Construction Backlog Indicator
http://www.abc.org/en-us/newsmedia/constructioneconomics/constructioneconomicupdate.aspxhttp://www.abc.org/en-us/newsmedia/constructioneconomics/constructioneconomicupdate.aspx


2/5


3/5

ECONOMICOUTLOOK


|S

EPTEMBER

2014

and with demographics beginningto turn in a new direction, edu-cation-related construction hasbegun a steady rebound. Between2014 and 2018, K-8 enrollment isprojected to advance 0.5 percent,0.6 percent, 0.8 percent, 0.8percent and 0.9 percent per year.e increases are partially traceableto trends in immigration and the

fact that an expanding portion ofGeneration Y is entering the ageof family formation. High school

and post-secondary enrollment isalso expected to rise, though theincreases in college enrollment willfall well short of the boom sustainedbetween 2007 and 2010.

According to School Planning &Management, 2012 represented thefirst time in five years that the totalvalue of K-12 construction put inplace grew relative to the prior year.

e increase was quite small: $700million compared to a five-yeardecline approaching $8 billion.

Reflecting both recent trendsin enrollment and fiscal realities,effectively all of the increase inspending was attributable torepairing and enlarging existingstructures. e most commonforms of school modernizationinvestment were electrical over-haul (included 48 percent of thetime in retrofit projects), HVAC

(45 percent), plumbing (28percent), lighting (28 percent)and roofing (26 percent). e

14

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Pre-K-8 College/University9-12

Historic and Projected U.S. School Enrollment (Annual % Change)

Source: U.S. Department of Education, National Center for Education Statistics
http://nces.ed.gov/http://nces.ed.gov/


4/5


5/5


|S

EPTEMBER

2014

amount of money spent on new schools continuedto decline through 2012.

In 2013, school construction rose just short of$400 million. Interestingly, the completion of newbuildings drove the increase. Spending on completednew buildings expanded by $1.4 billion compared to2012, when it achieved a 16-year low, while spend-ing for additions and retrofits actually retrenched.

Looking Ahead

Despite twists and turns,Planning4Education.comnotes that education building still ranks first in thenonresidential building market. e largest concentra-tion of spending is in the Texas, Louisiana, Oklahomaand Arkansas region, which accounts for approxi-mately $2 billion of school building dollars, or nearly17 percent of total national spending.

While college and university spending hasrepresented a stabilizing force for contractors inrecent years, this is likely to change going forward.e nations student debt situation has becomealarming. College and university presidents, whetherin public or private settings, are under pressure to

hold the line on tuition. Enrollment is no longerexpanding briskly as more young people chooseto participate in the labor market or to exit highereducation because the work is too challenging ortoo uninteresting, or because of more immediate jobopportunities. All of this translates into suppressedcapital spending.

By contrast, K-12 construction spending is likelyto rise along with the number of baby boomersgrandchildren. is factor already seems to be hav-ing an effect, though spending will continue to beconstrained by fiscal realities, including the growing

need for state and local governments to supportexpanding Medicaid and pension expenditures.Unfunded infrastructure also represents a source ofcompetition for dollars that might otherwise be usedto fund school construction.

Anirban Basu is chief economist of Associated Builders andContractors. For more information, visit www.abc.org.

Dont miss ABCs

upcoming events!

Oct. 1617, 2014

San Antonio, Texas

www.abc.org/ius

LEADERSHIPCONFERENCE

ABC2014

Nov. 1113, 2014

Miami, Fla.leadership.abc.org

Nov. 1314, 2014

Miami, Fla.

attorneys.abc.org

March 3-6, 2015

Ft. Lauderdale, Fla.

wdc.abc.org

2015ABC

LEGISLATIVE

CONFERENCE

June 25, 2015

Washington, D.C.

legcon.abc.org

abc.org/events

16
http://www.planning4education.com/http://www.planning4education.com/

091814 the Twists and Turns of Education Construction Spending

Documents

Transcript of 091814 the Twists and Turns of Education Construction Spending