Positive Developments in The Construction Industry and Their Effect on the Economy

With all the news of doom and gloom that one hears in the media these days, we thought to bring you some good news of what is happening in the construction industry overall and also in and around metropolitan Orange County, and the Inland Empire. 

The Importance of The Construction Industry 

Construction is a foundational industry. Without construction real estate is just dirt. So many industries feed off of construction. It is an industry that touches on every other industry and aspect of modern life. Construction contributes to the growth and development of the country by providing physical structures. It is one of the few essential sectors that touches nearly every revenue stream in the economy. It is an industry that may slow down but can never die as time goes by.

Construction industry creates employment opportunities in a multitude of other industries, including transportation, material supplies, manufacturing, education, healthcare, insurance industry, banking industry, auto industry, real estate and many, many more. The investment potential in the field of construction is quite large and ever growing. In California, construction and materials employers annually generate $485 billion in total revenue to support the state and local community. 

During Covid, through diligent efforts of various construction industry associations, such as the SCCA, construction was declared an essential industry in California. The effect was that jobs in construction and affiliated industries remained active and infused much-needed cash flow into the state’s economy. $26 billion in critical public and private infrastructure projects were able to continue construction safely during COVID-19. 750,000 workers were able to continue working safely earning 16.5 billion dollars to care for their families and adding much needed boost to local economies when they needed it most. 

Positive Developments in Technology

Technology innovation has changed the face of the construction industry. The industry is no longer a low- tech industry reliant only on manual labor.  From industry specific software, to real time communications between the field and office, and the use of robotics and other technologies, the industry has grown immensely and will continue its path of growth in the 21st century. 

Advanced robotics help bring ease of construction, and precise assembly of construction components in the field. A new innovation called Integrated Autonomous Robotic Solution (SPOT) improves productivity, provides seamless control at the site, allows improvement of workers’ safety and provides precise topographic surveys and reality capture. In addition, this robot may be used in very dangerous and unsafe site conditions without endangering human lives.

3-D scanning solutions with intelligent tools capture existing site condition data for accurate reviews and renovation prior to construction. 

Positive Changes in Legislation

In the last few months, the following changes in legislation have had positive effects in improving overall construction outlook in California. 

San Francisco Mayor Breed issued a directive to build 82,000 new homes as a critical first step toward accomplishing the goal of providing housing for all. This executive directive focuses on a few critical areas. One important area is to set an accelerated timeline for the proposal of high impact legislation, to find new ways to streamline, rather than obstruct, the construction of housing. 

The infrastructure investment and jobs act was signed into law on November 15, 2021 and largely focuses on turning investments into physical infrastructure. This act provides hundreds of billions of dollars of credit for the replacement and expansion of various public transit miles; as well as replacing existing trains and buses with zero emission vehicles. It also provides funds for developing a national network of charging stations to further facilitate the use of electric vehicles. The Act further aims at replacing and eliminating the current use of lead pipes in public water systems. In addition, $20 billion is set aside for brownfield site replacement and clean up. Furthermore, in 2022 the Department of Interior auctioned multiple sites off the coasts of New Jersey, New York, and North Carolina for development of future wind energy structures at a cost of about $5 billion.

Positive Developments and Notable Construction Projects in Southern California

The 2028 Olympics takes Place in July 2028. The building of an Olympic city has already started. The City will have capacity for 15,000 athletes and 800 events in 40 sports as well as hundreds of thousands of spectators.  The cost of Los Angeles to host the games is projected to be $7 billion. $1.4 billion is earmarked solely for transportation needs including subway extensions, light rail development, and interstate highway improvements. In addition, improvements to the airports in Los Angeles, Orange County, Burbank, Long Beach, Ontario, San Bernardino, and San Diego are in progress.  Light rail system improvements are in the works for Huntington Beach, seal Beach and North San Diego County.

The Irvine Great Park will see construction of the following: USA Water Polo Aquatics Facility; Veterans Memorial Garden; 15 Acre botanical gardens; 14,000 seat amphitheater; Retrofitting of Hanger 244 with places to eat. The target completion date is mentioned as 2023.

Improvements in Orange County

Irvine company has proposed 4500 apartments at six Irvine sites to comply with California housing mandates. Irvine Company construction will consist of the following: 1261 units at the Market Place on El Camino Real; 896 units into lots adjacent to the Gateway, Pacifica and Barranca Parkway; 1459 units in Discovery Park along with the I-5 freeway at the highway 133 interchange; 600 units at a vacant site, flanked by Gitano and Encanto streets; 320 units at the terminus of technology Drive and Highway 133. It is important to note that 1025 units will be designed as affordable housing. 

The county of Orange is planning $160 million in upgrades during the next seven years. Orange County Board of supervisors has already approved these upgrades in May 2022 and the roadmap for these upgrades is available in the OC public works website under CIP or Capital Improvement Programs. 

Additional construction in Orange County includes improvement of aging infrastructure in Rossmoor, Huntington Beach and Stanton; redevelopment of vertical structures in downtown Santa Ana, $20 million per year for maintenance of flood control channels, and $150 million per year for bridge replacements, street widenings, parking lot and library remodels, grading on mountain-type areas, pump stations, harbors and finally bike trails. 

Other projects include the widening of the 405 freeway, and $475 million work on the 55 freeway. 

Tracks are also under construction in Santa Ana for a light rail system, which is dubbed OC Streetcar and is scheduled to be completed by the end of 2023.  

Caltrans officials expect several milestones this year with the $1.2 billion Clean California initiative to improve and beautify the state’s roadways. By the summer, officials anticipate finishing sprucing up near the interchange of 5 and 55 freeways including, adding some artwork, and up in Placentia on the 57 freeway at Orangethorpe, two large public art pieces will be installed.

Challenges To Consider, And How to Turn Them into Opportunities

In 2022 construction saw approximately $1 trillion in total gains. The 2021 infrastructure package is keeping construction funded and moving forward. However, challenges remain as follows: cost of material increases, strains to the supply chain, and scarcity of labor, which is challenging, the construction industry, both quantitatively and qualitatively. 

To alleviate the effects of these challenges, experts advise that successful contractors must adapt to survive. Contractors need to maintain ample insurance to secure against possible losses; embrace innovation and leverage technology to be able to keep up with the times. 

Robotics and artificial intelligence may help automate certain construction tasks, formerly only achievable by manual labor. On the other hand, technologies, such as wearable safety gear, GPS, telematics and drones, can help result in fewer accidents, stronger safety programs, and lower insurance premiums.

It is good to know that according to industry experts, insurance rates across all lines of coverage continue to improve and should do so for the remainder of 2023. 

Renewal rate increases are expected to decline across all casualty insurance lines from their peak in the third quarter of 2020. From a contractor’s point of view, the increased competition amongst carriers for best-in-class insurance products should help contain costs. Experts advise that better organized submissions may lead to more positive renewal experiences. 

Conclusion

This article was written with the goal of instilling, not only positive attitude, but also faith in the future of the construction industry through an examination of factual data.  Construction experts believe that in the face of the uncertainties of the economy as a whole, the construction industry will thrive based on its solid foundation and provide a good basis for the growth of all industries that rely on the construction industry for their existence and growth. 

The material in this article was previously presented as a PowerPoint presentation and in addition to the author, the following individuals’ research was used with their permission: Fariba Mehdian, CPA; Rosemary Nunn, Esq; and Joel Alberto, Insurance Agent.