Construction Trends

August 2008

California Adopts Nation’s First Statewide "Green” Building Code
On July 17, the California Building Standards Commission announced the unanimous adoption of the nation’s first statewide "green” building code. The code is a direct result of the governor’s direction to the commission and will lead to improved energy efficiency and reduced water consumption in all new construction throughout the state, while also reducing the carbon footprint of every new structure in California.

The new California Green Building Standards Code goes beyond the current building standards. These new statewide standards will result in significant improvements in water usage for both commercial and residential plumbing fixtures and target a 50 percent landscape water conservation reduction. They also push builders to reduce energy use of their structures by 15 percent more than today’s current standards. The new standards declare the minimum California will accept in environmentally friendly design—local jurisdictions and builders who wish to do more are applauded.

In addition to the new codes adopted July 17, California Gov. Arnold Schwarzenegger’s Green Building Initiative (Executive Order S-20-04) directs state agencies to reduce energy use at state-owned buildings 20 percent by 2015, while also reducing the impact state buildings have on climate change. His executive order directs that new state construction and major renovation projects should meet a minimum of the U.S. Green Building Council’s LEED® Silver certification in order to save energy, conserve water, divert waste from landfills and cut greenhouse gas emissions. To date, 13 state buildings have achieved LEED certification.

California’s new building standards will result in increased water and energy savings through a combination of more efficient appliances, use of efficient landscapes and more efficient building design and operation. The code also encourages the use of recycled materials in carpets and building materials, and identifies various site improvements including parking for hybrid vehicles and better storm water plans.

Additionally, the new code contains standards for single-family homes, health facilities and commercial buildings. The code is composed of optional standards that will become mandatory in the 2010 edition of the code. This adjustment period will allow for industry and local enforcement agencies to prepare for, and comply with, the new green building standards.

Moving forward after 2010, the California Green Building Standards Code will be updated on an annual basis to ensure that the latest technology and methods of construction have been incorporated to always maintain a high level of standards.

Following the announcement from California, the U.S. Green Building Council issued a statement applauding California’s adoption of green building codes:

"The LEED green building certification system helped lead the way while setting the stage for states and municipalities to strengthen local building codes.” said Rick Fedrizzi, USGBC President, CEO and Founding Chair. "Buildings are our first, best opportunity to reduce energy use and C02 emissions, and greening them must be a critical component of any policy approach that aims to fight climate change.”

California is the first state to adopt a state-wide "green” building code. Greensburg, Kan., which was all but obliterated by a tornado last May, was the first city in the country to adopt green building standards. The city of Greensburg has mandated that all city buildings larger than 4,000 square feet must be built to the LEED® Platinum level and must have an energy performance level at least 42 percent better than current building code requirements.

Builder Confidence Declines Further in July
Builder confidence in the market for newly built single-family homes fell for a third consecutive month in July, according to the National Association of Home Builders/Wells Fargo Housing Market Index, released July 16. The HMI fell below its previous record low of 18 in June to a new record low of 16 in July, with each of its three component indexes also hitting record lows.

A housing stimulus bill being considered in Congress as we went to press would provide a temporary tax credit of up to $8,000 for first-time home buyers, helping to stimulate sales, reduce the inventory of unsold homes on the market, stabilize house prices and arrest the rapid deterioration of mortgage credit quality.

"Builders are reporting that traffic of prospective buyers has fallen off substantially in recent months,” said NAHB Chief Economist David Seiders. "Given the systematic deterioration of job markets, rising energy costs and sinking home values aggravated by the rising tide of foreclosures, many prospective buyers have simply returned to the sidelines until conditions improve,” he said. "An $8,000 tax credit, made available for a limited time, could be just the incentive needed to draw them into the game, and a policy-induced pickup in home sales could gain momentum further down the line.”

Derived from a monthly survey that NAHB has been conducting for more than 20 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as "good,” "fair” or "poor.” The survey also asks builders to rate traffic of prospective buyers as "high to very high,” "average” or "low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor.

Each of the HMI’s component indexes fell to new record lows in July. The index gauging current sales conditions declined one point to 16, the index gauging sales expectations in the next months fell four points to 23, and the index gauging traffic of prospective buyers also receded four points, to 12.

All but one region showed declines in builder confidence in July. The Midwest declined six points to 10, its lowest HMI score since the regional detail was introduced in December 2004, while the West matched a record low set in January 2008 with its three-point decline to 13. The South posted a one-point decline to 20. The Northeast was the only region to post a gain in July’s HMI, rising two points to 14 from the previous month’s record low of 12.

More Nonresidential Construction Jobs Lost in June
The nation’s nonresidential construction sector lost 5,600 jobs in June, on a seasonally-adjusted basis, according to the July 3 employment report by the U.S. Labor Department. However, the loss of jobs in June was less than the job losses recorded in May, which was revised upward to 7,400 in the most recent employment report. The 6-month job losses for nonresidential construction now stands at 29,100 and a 12-month net loss of 43,900 jobs since June 2007.

Residential construction continues to lose jobs more rapidly than nonresidential construction with reported job losses in June of 6,700 since May. Between June 2007 and June 2008, residential construction has lost nearly 115,000 jobs.

Total construction employment in June 2008 is down 452,000 since June 2007, a decline of nearly 6 percent. On a monthly basis, total construction employment has recorded 43,000 job losses since May. And, since the employment peak in September 2006, construction has now lost more than 500,000 positions, with building construction representing about 26.5 percent of the losses on a seasonally-adjusted basis.

Overall, the national unemployment rate in June has remained steady at 5.5 percent, unchanged from May. The last time the unemployment rate was this high was October 2004. Total nonfarm employment continues to contract as it netted another loss of 62,000 jobs since May.

Associated Builders and Contractors says that, although June’s job loss was somewhat less than the job losses in May, a longer term view of the data suggests that nonresidential construction activities are decelerating. Of the total net nonresidential construction jobs lost in the past year, roughly two thirds have occurred during the past six months. With the economy continuing to deteriorate due to a host of factors, including overextended consumers and a stubborn credit crunch, ABC anticipates continued nonresidential construction job losses in the remaining months of 2008 and into 2009.

One of the construction industry’s key leading indicators, the architectural billings index, is down to historic lows last seen in 1995, indicating a substantial slowing in nonresidential construction starts. Rising construction input prices represent another drag on the nonresidential construction industry as many developers find that their business plans do not reflect adequate cash flow to justify moving ahead with projects. However, there are exceptions as contractors are finding opportunities in both the power sector, as the need for generating facilities continues to grow, and the manufacturing sector, as America expands its export base.

May Construction Holds Steady
At a seasonally adjusted annual rate of $557.8 billion, new construction starts in May were essentially unchanged from April, according to McGraw-Hill Construction, a division of The McGraw-Hill Companies. Nonresidential building in May registered a particularly strong performance, led by the start of several large manufacturing plants. At the same time, residential building continued to show a loss of momentum, and the nonbuilding construction sector retreated after April’s elevated activity. During the first five months of 2008, total construction on an unadjusted basis was reported at $228.3 billion, down 14 percent from the same period a year ago. If residential building is excluded from the year-to-date comparison, new construction starts in the first five months of 2008 increased 7 percent.

The May statistics produced a reading of 118 for the Dodge Index (2000=100), the same as April’s revised level, although 11 percent below the full year average for 2007 at 133.

Nonresidential building in May advanced 26 percent to $264.7 billion (annual rate). The manufacturing building category soared 531 percent, due largely to the start of a massive $3.8 billion oil refinery expansion in Indiana. If this project is excluded, the manufacturing building category would be up 55 percent while the nonresidential total would be up 4 percent.

On the institutional side of the nonresidential market, the educational building category increased 14 percent, healthcare facilities grew 8 percent, church construction in May advanced 21 percent, and modest growth was reported for dormitories (up 5 percent) and public buildings (up 3 percent). The amusement category in May retreated 25 percent from April, which was boosted by a $400 million convention center expansion in Philadelphia. Transportation terminal work, sliding 17 percent, also retreated in May.

The commercial categories in May had a mixed performance. Hotel construction bounced back from a weak April, climbing 26 percent. Store construction increased 8 percent, marking a brief departure from its recent downward trend, as a $100 million shopping center renovation was started in Santa Monica, Calif. Modest gains in May were reported for garages (up 3 percent) and warehouses (up 2 percent). However, the office building category dropped 21 percent.

Residential building, at $174.4 billion (annual rate), fell 5 percent in May. Single-family housing continues to recede, slipping 2 percent in May, and since early 2006 the extended single-family correction has shown weaker activity being reported in all but three months.

By region, single-family housing revealed this behavior: declines in the West (down 6 percent), the South Central (down 4 percent), the Northeast (down 2 percent) and the South Atlantic (down 1 percent), while the Midwest ran counter with a 4 percent gain. Multifamily housing in May descended 13 percent, resuming its retreat after a brief upturn in April.

The 14 percent drop for total construction in the January–May period of 2008, compared to last year, reflected this pattern by sector: residential building, down 40 percent; nonbuilding construction, down 2 percent; and nonresidential building, up 13 percent.

By region, total construction in the first five months of 2008 revealed double-digit declines in three regions: the South Atlantic, down 27 percent; the West, down 23 percent; and the Midwest, down 12 percent. The South Central, down 1 percent, was essentially steady year-to-date, while the Northeast registered a 7 percent increase.

Pay-If-Paid Bites the Dust in Another State By Donald W. Gregory, Esq.
Kegler, Brown, Hill & Ritter
Columbus, Ohio


Nevada recently joined the list of states (like California and New York) that have found "pay-if-paid” clauses unenforceable as against public policy. The Supreme Court of Nevada ruled that lien waivers and "pay-if-paid” provisions used on the Venetian project were invalid because the "pay-if-paid” provision "limits a subcontractor’s ability to get paid for work already performed” and "has the same practical effect” as a waiver of lien rights.

While many states still find "pay-if-paid” clauses (meaning that if the owner does not pay the general contractor, the subs never get paid) enforceable if plainly and unambiguously stated, it appears that many courts are recognizing the inherent unfairness of such clauses and looking for a way to declare them invalid, particularly if they have the practical impact of restricting subcontractors’ statutory or constitutional rights to mechanic’s liens.

People & Companies in the News
BASF® Wall Systems announced June 23 that the International Code Council (ICC) Evaluation Services has issued ESR-2429, which recognizes PermaLath® 1000 glass fiber lath under the ICC-ES Acceptance Criteria AC 275 for Glass Fiber Lath Used in Exterior Cementitious Wall Coatings or Exterior Cement Plaster (Stucco). The report confirms compliance with the 2006 International Building Code and the 2006 International Residential Code.

ESR-2429 recognizes PermaLath 1000 for use in combustible, non-combustible, and fire resistive construction with ASTM C 926 (three coat) stucco, as well as with BASF Wall Systems’ Stuccobase products. Systems with PermaLath 1000 are recognized with wood framing, and minimum 20-gauge steel framing along with sheathings that include OSB, plywood, ASTM C 79 paper-faced gypsum and ASTM C 1177 glass mat-faced gypsum.

Bonsal American, Charlotte, N.C., was recognized as the True Value Supplier of the Year in the Lumber and Building Materials category, for the second time in three years at the True Value Award ceremony held in May, thanks to its consumer-based product line, Sakrete®. Bonsal American was honored because of its continued partnership with True Value, its strong customer service, its ability to keep high demand items in stock, and a more than 10 percent growth in sales.

A. Awais Sultan, a professional chemist with more than 15 years of hands-on experience in the North American chemical industry, has been named senior chemist at Dryvit, West Warwick, R.I.

The Drywall Finishing Council has elected new officers. Per the DWFC bylaws, the following will serve two-year terms:
• President, Jack Walker (National Gypsum Company). • Vice president, Bob Negri (USG Corporation).
• Chief financial officer/treasurer, Duane Freeman (Freeman Products, Inc.).
• Secretary, Greg Frings (Solid Products, Inc.).

LENOX, a manufacturer of power tool accessories, torches, solder and band saw blades that is located in East Longmeadow, Mass., has named David Pirkle as its new president of industrial products and services.

ProBuild Holdings Inc., Denver, has appointed Robert F. Rugg as president, gypsum, where he will oversee all strategic activities for the gypsum business throughout ProBuild.