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By Jeff Wing
May 23, 2016
For about nine months the U.S. media machine turns its full attention to the Presidential election ceremony. Water coolers become scenes of feverish political chit chat, and the nation’s economic stakeholders pay very close attention. Watching keenly from the sidelines along with other invested observers is the construction industry, which at last count represents a whopping ~ 5.5% of GDP. The quadrennial election ritual is expensive, all-consuming, and loud. And there is much at stake.
Yes and no, says Anirban Basu, Procore Chief Economist.
“The relationship between election-year politics and construction seems to have been broken, to a certain extent,” the economist explains. “One area in which we’ve seen more public spending is in highways and streets, but this is in part due to the passage of a new federal highway bill late last year... and has less to do with the fact that there was a presidential election cycle beginning.”
According to Basu, any detectable election year effects on construction are largely confined to local economies, and mostly in the residential construction segment.
“Residential construction tends not to be affected by a presidential election,” he says. “But residential construction can be deeply impacted by local elections. Local governments typically have control over zoning and permitting, and the victory of one politician over another can significantly alter the fortunes of residential developers.” Basu cites the example of anti-development forces gaining political favor in a local election, causing developers in the area to shift focus to an adjacent community where the political climate may be more favorable to building.
“Often the anti-development movement is strongest along the East and the West Coast,” he notes. “It's also often strong in rural areas as well. But the heartland tends to be more favorable towards development. Where many communities have been depopulating, they welcome that form of investment.”
“Of course, who is elected president can make an enormous difference. Non-residential construction firms often pay enormous interest to presidential elections because it really does affect what is built and where it is built.” A presidential candidate’s energy policy also has an impact on the construction sector.
“The next president will have much to say about energy costs in the United States. The decisions on energy will impact natural gas power plant construction, nuclear power plant construction, and wind and solar investment, among other things.”
“This can also mean the difference between energy being generated from West Virginia or California. California is one of the strongest states, if not the strongest, for solar energy. West Virginia, of course, is coal country, and those regional economic dynamics impact the contractors located in those communities. Therefore, it really matters.”
“Yes, but that's just one example. One could also speak to the fact that one particular president may favor mass transit and another may favor more highway construction. These decisions have enormous implications. Highway construction tends to generate more economic activity in rural areas and in smaller cities. Mass transit investment tends to place more dollars in larger cities. Therefore, it makes a huge difference in terms of nonresidential construction building who is elected president.”
“My guess is that we (will) have a more divided government. Washington D.C. will not be a source of impetus to the economy,” Basu suggests. “The impetus will therefore come from local economies. And right now, we have some regional economies around the country that are extremely healthy. There's every reason to be upbeat if you're in Austin, Dallas, Boston, or Silicon Valley.”
One of the most famous political aphorisms comes to us from former House Speaker, Thomas “Tip” O’Neill, who spoke to the political primacy of community when he famously said, “All politics is local.” In the question of presidential election-year effects on the construction industry, Basu agrees.
“It's up to state and local governments to figure out what they want to have built and how much infrastructure they're willing to finance. That could affect, of course, the general tenor of non-residential construction activity in America.”
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