By John Deskins and Brian Lego
West Virginia’s construction sector remains on the road to recovery. While job gains have not been consistent on a monthly basis over the course of 2013, employment in the sector has increased at a strong pace overall.
Since bottoming out just over two years ago, the industry has seen the addition of 3,000 jobs, and workers have seen their average workweeks increase in length. Total economic output increased by nearly 17 percent from 2012. A recovery in single-family home construction throughout the state, particularly in higher-growth areas such as the Eastern Panhandle and Putnam County, has been welcoming news. However, the largest spark to the sector in recent years has been a surge in construction associated with the boom in natural gas production activity.
The broad heavy and civil engineering construction subsector posted a nearly 51 percent increase in employment from 2010 through 2012. While this industry is generally linked to highway construction and other forms of traditional infrastructure construction and repair jobs, it also includes workers who perform construction at oil and gas sites, as well as new pipeline development. Employment in this subsector has more than tripled during the last two calendar years and has accounted for a wide majority of the new construction jobs added on net since 2010. By comparison, residential construction employment—including contractors—has increased modestly during the past two years, while nonresidential construction employment saw its first calendar year increase since 2008.
Residential Construction
Just more than 2,000 new single-family homes were started at some point during the year from mid-2012 to mid-2013, according to data from McGraw-Hill Construction. Although this represents a pace that is more than two-thirds lower than the height of the state’s building activity in early 2006, it does mark a 19 percent increase from just one year ago. In addition, the recent gains in new construction activity put this new supply of housing units at approximately half of the number of new homes expected in a given year after one takes into account the current stock of housing, population growth, replacement and the general preference for new homes by some buyers.
Because of the state’s low population density and high homeownership rate, West Virginia tends to not be very active in terms of multifamily construction activity. The peak in apartment construction occurred during 2006 and 2007, when more than 2,000 units were started, with a substantial share of those newly-built units added in Berkeley County. As of mid-2013, fewer than 300 multifamily units had been started within the state’s 55 counties over the preceding 12 months.
Nonbuilding and Nonresidential Construction
While the state’s single-family construction sector has shown signs of improvement over the past 12 months, the nonbuilding segment has struggled significantly. Nonbuilding construction typically consists of infrastructure projects such as highways, bridges and water and sewer systems, as well as utility distribution systems. These line items are linked to federal, state and local spending decisions made with a considerable lag before construction takes place. Given the extensive debates over the trajectory of government spending occurring at all levels, funding decisions for projects have likely been stalled, which has an adverse effect on nonbuilding construction activity.
During the first half of 2013, new nonbuilding projects started in West Virginia totaled $270 million, marking a 46 percent plunge in dollar value compared to the same time frame in 2012. Among the major nonbuilding types, data from McGraw-Hill indicates only waterway infrastructure projects experienced an increase in year-to-date spending activity compared to 2012.
For the nonresidential construction sector, the value of new projects started during the first half of 2013 totaled $221 million, slipping nearly 8 percent compared to the same six-month period in 2012. In addition, the level of new nonresidential construction spending within the state was at its lowest for the first half of a year since 2003. Offices, bank buildings and retail space—as well as schools, libraries and other types of government buildings—represent some of the building types included within the nonresidential sector. Of the nonresidential property types reported by McGraw-Hill, only new office space and education-related buildings posted a gain in new construction through the first six months of 2013.
Industry Outlook
Publicly-funded infrastructure spending in West Virginia, as well as other states, will remain under pressure during the forecast horizon. Increased fuel efficiency of U.S. vehicles combined with virtually no increases in miles driven over the past six years has led to sluggish growth in fuel taxes and shortfalls in the federal highway trust fund. In addition to the problems created by weak state revenue growth, broader federal tax reform and other plans connected to reducing the federal debt could have a significant effect on funding for future highway construction and other infrastructure development in the state.
The overall construction industry forecast calls for the sector to record strong growth of 2.3 percent per year between 2013 and 2018, though not all segments are expected to participate in the expansion to the same degree. The state’s energy industry is expected to remain a solid contributor to the construction sector going forward, but its impact will be smaller than the robust amounts of the past two years. TransGas Development Systems’ coal liquefaction plant project, targeted for construction in Mingo County, could reportedly generate as many as 3,000 construction jobs to build the nearly $4 billion facility.
New pipelines and distribution systems will need to be constructed in order to transport the large amounts of natural gas extracted from the Marcellus, Utica and Devonian shale formations in West Virginia and the surrounding region to utility companies and other end users. Large quantities of ethane and other by-products found while extracting natural gas reserves have also yielded proposals for constructing facilities in West Virginia to process these products for industrial applications.
A continuing recovery in the state’s housing market is also expected to bode well for the construction sector. New single-family home construction is expected to accelerate modestly over the next few years in the state’s traditionally higher-growth locales due to the combined effects of stronger economic growth, relatively low interest rates and waning competition from distressed sales. Healthy rates of in-migration and rising per capita incomes will support demand for new single-family housing construction in areas like the Eastern Panhandle over the long term.
Overall, the outlook for West Virginia’s construction sector is largely positive. Issues with the federal budget may hamper growth in investment for highways and other forms of infrastructure, but new construction activity linked to booming growth in the state’s oil and gas industry and a general recovery in the single-family housing market offer strong sources for optimism for the industry in the state.
