The burst of the housing bubble in 2007 shined a spotlight on the big weak spot in economics: human behavior.
“There are times in our history when developers have gotten a little exuberant and have overbuilt compared to what the demand conditions really were,” says Patty Silverstein, president and chief economist at Development Research Partners in Littleton. The independent firm studies the economy of metro Denver.
“Construction, we hope, only occurs as a response to a need,” she says. “We hope we’re not out there building new houses just for the fun of it all.”
If anybody was having fun, it screeched to a halt as the market collapsed.
“During this economic downturn we saw some tremendous losses on construction employment because there was no need for new construction activity during that period of time,” Silverstein says.
And that’s a key point about the construction industry: It’s important to the economy because it provides employment to lots of people, both directly and indirectly through secondary effects. Economists agree that building a new home is most likely the single biggest economic activity people will do in their lives.
Construction in Colorado, both new building and remodeling, accounts for 3 to 6 percent of the state’s gross domestic product, depending on the year, and in 2012 accounted for 5 percent of the state’s employment, with more than 115,000 people. But economists note that, as high as those numbers are, they don’t account for the secondary industries that benefit from new home construction.
“The issue with construction is that it also drives a lot of other industries, whether it’s appliances, carpet, building materials, even government zoning, regulation, permitting departments for different counties,” says Ron Throupe, an associate professor at the Burns School of Real Estate & Construction Management at the University of Denver. “There’s a lot of what we call secondary effects that construction drags along.”
Which is good, as long as times are good, Silverstein says.
“Generally we talk about construction as having some large multiplier effects on the economy, both in a positive as well as in a negative way,” she says.
“There’s no doubt that new construction is very good for the economy,” says Julie Herman, executive director of the Colorado Green Building Guild. “And there’s a very broad base of contractors and suppliers who benefit from that.”
But none of this is exceptionally pleasant news for environmentalists, given the necessary consumption of resources in building. And economists don’t foresee an industry stepping in to do as much for employment numbers as construction does — though there’s just no way of knowing what will come next, they say.
Economists are quick to say that it’s not accurate to consider construction a “driver” for the economy or a primary industry.
“In the economic development realm, we distinguish between primary employment — primary employment being those jobs that are really bringing new dollars into the economy,” Silverstein says, comparing it to “services” that contribute to an economy, but don’t form the basis.
“There’s gotta be some other core of economic activity that makes that particular location viable,” says Jeffrey Zax, a professor of economics at the University of Colorado Boulder. He says exporting goods or services isn’t necessarily the only basis of an economy, but he agrees that construction can’t form the basis by itself.
One trend in construction is earning some praise: Green building techniques and technologies aren’t just groundbreaking or unusual anymore; they’re now the standard, and in Boulder County, they’re even becoming required.
“When you talk broadly,” says Herman, “the city of Boulder and Boulder County have pretty stringent building codes that help ensure the new home is going to meet those ... energy efficiency and green standards.”
Boulder’s pro-environment building codes cover large issues like land use and zoning down to energy efficiency requirements for appliances and fixtures.
“Toilets with less water flow or shower heads with less water flow, those things,” says Throupe. “Even aeration on your sink to wash your hands — instead of straight water, you have an aerator on it, so it sprays the water, uses less water. You don’t have to think about it. It’s done for you.”
Throupe says eco-conscious building concepts have gradually moved from novel to normal.
“What you’re going to find over time is those concepts are going to be incorporated into building codes, so it won’t be special, it’ll be what everyone does,” he says.
On a larger scale, developers and communities are also making eco-conscious decisions.
“New urbanism — I don’t know how many people would know that term, but just thinking about where new developments go, where new homes go, what kind of building codes are in place to ensure that they’re as green as possible and sustainable practices are undertaken,” Herman says. “There’s a lot of policy around transportation and land use and building codes.”
It’s a shift in philosophy, Silverstein says, away from a pre-recession trend that ate up land voraciously.
“We’re not exactly building the McMansions these days,” she says. “As we have the baby boomers who are aging and are looking for homes that don’t require as much upkeep and maintenance ... you’re not necessarily utilizing as much space.”
“New urbanism is really a throwback to the ’60s, let’s say,” Throupe says, “when you had neighborhoods that had … the butcher, the dry cleaner, everything was there, so you live in closer confines in those neighborhoods. … Instead of a big subdivision, where housing was one thing and you had to go somewhere else for your services, new urbanism tends to put it all together.
“You use less new land,” he says.
Herman also points to “cradle to grave” thinking — taking into account where materials come from and how long they last — as a positive sign.
“Suppose you build a really tight green, quote unquote, house and use all sustainable materials, but you’re drawing on resources that come from China,” she says. “You need to think about the expense and the energy that went into producing it and then bringing it all across the world. Then is your house really a model of sustainability?”
Asked whether there was any chance of a more sustainable industry stepping up to provide employment, Zax says it’s likely to happen, but predicting what it will be is impossible.
“There’s a bias in all of us to think that the way it is is the only way it could be,” he says. “But that’s just wrong.
“In the long run — maybe not in the first month — but basically, if there are unemployed resources in the economy, there is the tendency to employ them.”
Zax points to the past to demonstrate that something new will step up to fill an economic void.
“You would have said the same thing about manufacturing 40 years ago, when manufacturing was 40 percent of the economy,” he says. Over that span, Bureau of Labor Statistics numbers say the figure dropped from roughly 24 to 9 percent. “You would have said, ‘Oh my God’ — and people still say it — ‘If we don’t manufacture, what will people do?’ And the answer is, a lot of other stuff.”