New construction is a cornerstone of the U.S. economy. In eras past, when other portions of our economy struggled, new home and commercial construction helped keep it afloat.
When the last recession hit nearly six years ago, however, experts began to question the role new construction would play if and when the economy rebounded. While the answer is still unclear, recent developments have suggested ways that experts might refine their sense of the big economic picture.
Across the Sunbelt, construction is returning. While the recession forced a temporary halt in population growth down in Florida, new construction is back on track in that state as people are again looking to move to the Sunshine State, and that means young people looking for thrills as well as retirees.
As might be expected, commercial construction has returned to Florida in a big way, as well as to other southern and western states. But home construction has not rebounded as much as some had predicted.
Reasons for the soft rebound
Part of the explanation for why construction has not rebounded as much as many in the industry had hoped is the recent high rates of student debt. The skyrocketing cost of schooling and high interest rates have made it much more difficult for recent graduates to accumulate sufficient funds for a healthy down payment.
However, some observers are pointing toward another potential cause: The suburbs no longer appeal to younger people. Their parents and grandparents often fled the big cities, but younger generations prefer a more urban environment.
They say they wish to spend less time driving, and many wish to live and be active in a vibrant community. A small apartment in a big city is regarded as a better place to live than a large house in the suburbs, and young people are willing to pay a premium based on what they save on commuting time, gasoline, and even car ownership to live in an apartment located in a more densely populated area.
Flocking back to downtown
As a result, apartment construction has increased significantly, and rental rates are dropping in response. Similarly, developers have turned their attention to infill development rather than expanding suburban areas.
While construction trends in the past were based on expanding a city’s footprint, many modern projects are filling in the spaces left by past urban (and suburban) sprawl.
This shift is also being encouraged by municipal and county organizations around the nation. Many cities in the Sunbelt have become notorious for sprawl, but future growth is much less likely to involve new developments in rural areas.
To grow in a healthy manner, cities will focus on density. Denser cities are easier to manage on a number of levels; for example, city governments interested in public transportation options will have an easier job if they encourage financiers to focus on infill development.
The recession has also brought gentrification to the forefront. Rundown neighborhoods are becoming popular among young people, which drives up rent prices in those areas.
As a result, residents become unable to afford apartments they may have lived in for decades. The recession slowed gentrification for a time, but it has come back in full force, and cities will have to help victims of the process to find new places to live.
Rent control can help to an extent, but most experts believe there is no way to stop gentrification in popular cities.