One of the biggest concerns facing the construction sector is “people.” For most of us in the industry, that concern is centered on the acute lack of skilled labor facing the sector.
I think, though, the “people” concern goes deeper than that. At the end of the day, what we do is build things for people: homes, roads, schools, etc. However, population growth in the U.S. is slowing.
According to the U.S. Census Bureau, total population grew 0.1% in 2021 due to declining birth rates and reduced international migration. That marks the first time since 1937 that population has increased by less than one million people. The last time the annual growth rate was as weak as it was in 2021 was 1918–1919, during the influenza pandemic and World War I.
Fewer people should, over time, lead to reduced demand for construction services.
It’s certainly easy to dwell on the negative here, but by doing so I think you miss the opportunities for your company to grow and excel despite this daunting challenge.
Digging deeper into the Dodge Construction Network historical starts database over the last two years, we’ve seen a shift in building starts (both residential and nonresidential) away from denser urban areas and towards more affordable and less dense areas of the country. No doubt some of this is due to the increasing opportunities created by more remote work.
This shift could have profound impacts, not only on where we’ll see construction take place over the next few years, but also on the type of construction that we’ll see.
In general, the U.S. is seeing stronger population growth in the south and mountain west: Think Texas, Florida, South Carolina, Idaho, Utah, and Arizona. On the flip side, population growth is declining in the northeast, the Great Lakes states, and the far west: Think New York, Massachusetts, California, Illinois, and Hawaii.
If your business is centered in those stronger growth areas, odds are you are going to be busy. Residential construction generally leads nonresidential activity so first comes the houses, water, and roads, then the schools, healthcare, and commercial properties. This will mostly be focused on new construction.
It’s not to say, though, that in areas with slower population growth that your business will slow. These have, in general, an older building stock. As a result renovation activity as a share of the total is increasing. Education, in particular, is benefiting as some K-12 schools in the northeast are close to 70 years old and are being replaced or renovated despite slowing population growth.
Despite the challenge of slowing demographic growth, there remains an incredible opportunity to increase your revenues. Make sure your business is tuned to meet the challenges you’ll face in your area.