Between March 17 and 19, 2020, the Associated General Contractors of America surveyed more than 900 builders about the impact Covid-19 is having on their business. 28% of respondents reported that they’ve delayed or halted jobs they were working on. The building and construction industry is being challenged once more, alongside nearly every other industry that exists globally. And yet, builders, perhaps more so than other industries, are better suited to weather such a storm.
Builders have essential skills that literally create and power the world around us. Those skills are always going to be needed. On top of that they also have the biggest hearts, as we stated in a recent blog post:
“even during the recession, even when other sectors had slowed, and even in the geographic epicenter of the fallout, builders maintained or exceeded their “levels of charitable activity.”
The combination of skill and heart lends itself to a special type of resilience that runs deep in the builder community, carrying them through the toughest of times.
Is Building/Construction Protected From Recession by Nature?
One of the reasons, at least in recent history, that the industry has been so resilient is because in some ways it is recession-proof. The nature of construction is cyclical and essential. This is especially true for large, multi-year projects that are already well underway and can’t just stop. Consider a hospital in mid-construction or the repair of a bridge that’s reached the end of its lifecycle. In New York City right now for example, large private or publicly-funded restoration projects are ongoing.
But what about smaller projects that tend to be more residential? During a recession people don’t buy and sell their houses as much, instead they stay put and renovate, which is great news for contractors. At the same time, as housing prices drop, house flippers step in and renovate to resell when the market recovers.
Due to the nature of the industry, builders of all sizes are typically able to continue working during economically-challenging periods. Let’s look at the evidence.
A History of Resilience
Between February of 2006 and July of 2014 the residential renovation market remained relatively consistent, because “as long as people live in homes, money will be spent on fixing them up.”
Statistics Canada reports that following the 2008 recession the construction industry bounced back in a big way:
“In 2010, when the economy saw signs of improvement, employment in all industries grew 1.4%, while employment in construction advanced 4.9%.”
Even in the worst year in construction since 1970, the industry generated more than double that of all gas and oil sales, all computer sales, all car sales and all consumer electronics sales - about half a trillion dollars in revenue. So even in the worst of times historically, builders were still working more than other industries.
The Canadian Business Journal reminds us that the construction industry in many Canadian provinces followed the national pattern of recovery, or did even better than before, after the last major economic downturn. They share uplifting words for hard times: “There are several areas that have shown marked strength in the construction industry over the past couple of years, and by all accounts they stand to continue.”
Despite these challenging times today, we agree that the strength of the construction industry has been demonstrated in the past, and continues to be very apparent today. And yet, we can’t deny that today’s situation is different than past recessions. Since WWII, financial crises have been related to oil, financial bubbles or mistakes, says Deloitte. However today the problem is two-fold, stemming not just from demand-side disruptions but also from the supply side.
We’ll Get Through This Together, We Always Have
It’s true that this type of recession and interruption to the economy looks different than it ever has before in recent history, and yet the need for construction remains. How will our sector cope? Again, it’s the strength of builder’s hearts that will carry the industry through this difficult time, as it always has. Already actors have started stepping in.
- The construction team working on the Pennsylvania University Hospital project is now working 24 hours per day, 7 days per week, to deliver critical bed space 15 months ahead of schedule.
- ProCore is making their platform free to any customers working on emergency relief construction projects, to help accelerate solutions.
- Ventilation engineering experts are putting forth plans with instructions to help minimize the risk of transmission in health care facilities.
Construction leaders can reduce the impact that the Covid-19 situation is having on their businesses by actively working through resources available to them. Construction Dive, for example, maintains a map of major interruptions to US construction that executives in the industry should keep an eye on.
Deloitte has created an excellent action guide on resilient leadership during the Covid crisis, encouraging businesses to strike a balance between short and long-term action plans. This type of guide can empower leaders with tools and strategies to think through this “black swan” situation. Construction businesses who have been forced to close, with an open project, should assess insurance and contract provisions they’re currently engaged in to protect themselves.
In terms of financial relief, there are different programs available to help businesses of different sizes in different regions. For example in the US, small and mid-size businesses have access to loans under the CARES Act, and two-weeks of pay for workers on leave due to the Coronavirus under the new Families First Coronavirus Response Act. In Canada, there are resources in place to support businesses, including the Canadian Emergency Response Benefit, the Canadian Emergency Business Account, and the Canadian Emergency Wage Subsidy. When things do get back to normal, construction businesses can start planning how to return to work using this 5-step guide. Government-led recovery measures in sectors like construction and real estate are likely to help restart the economy as well when the time comes.
While many industry leaders are pointing to the different ways that the construction industry is being impacted by Covid, others are putting forth more positive projections. Despite the pandemic, the AGC Chief Economist, Ken Simonson, still predicts that total construction will increase between 2% and 6% this year. He says this is due to residential construction that he expects will increase between 5% and 9%. We surveyed our own clients and many of them are anticipating a strong comeback, with 45% predicting we’ll return to pre-COVID-19 activity levels or become even more busy, when social and business restrictions are lifted.
The truth is no one knows exactly how the current situation will unfold, everything is unprecedented, everything is uncertain. But take comfort in this one fact that is absolutely certain:
Throughout all of our known history, since Ancient Egyptian times 5000 years ago, building and construction has continued; it has evolved; and it has endured. Despite every challenge, the industry always rises to its feet once more, and helps the world pick up the pieces and build new ones.
Image 1: BDC Network