Between the Bubbles

In the construction industry, we often experience “bubbles”. No doubt, if you have been in business long enough, you remember the housing bubble of 2007 and 2008. More than likely, you remember the burst of the housing bubble. This event, along with several other contributing factors, resulted in one of the the largest recessions in US history and the most devastating market crash since The Great Depression of the 1930’s. The effects were palpable across the globe, with North America and Europe bearing the brunt of the hardship. It was felt across all markets, but as we all know, it was felt in the construction market as hard as anywhere.

Regardless of your political identification or personal beliefs of what has brought us back from that recession, we can all agree that most everyone that survived has been breathing a little easier in the last couple of years. While some businesses are probably still not at 100%, most are doing pretty well.

In fact, most of 2017 has given us healthy growth and market strength. Q3 started with a small plateau in design work, according to the Architecture Billings Index, but this shouldn’t be an indicator that there are problems. In October 2017, Chief Economist for the American Institute of Architects (AIA), Kermit Baker, Hon. AIA, Ph.D., stated, “we’ve seen unexpectedly strong numbers in design activity for most of 2017, so the pause in September should be viewed in that context”. Baker continued by stating that “project inquiries and new design contracts remain healthy, and the continued strength in most sectors and regions indicates stability industry-wide.” This insight into the design aspect of our industry gives us a good indicator of what the first part of 2018 should hold in store.

The 2017 hurricane season officially opened on June 1st and will end on November 30th. The one-two punch offered by Hurricanes Harvey and Irma crippled the Gulf Coast, Texas, and the Caribbean. Hurricane Jose provided its own version of destruction just in time for Hurricane Maria, which is still in the news due to political showmanship and because of the true devastation that destroyed Puerto Rico and surrounding islands.

Although it’s hard to immediately consider a  “good side” connected with a natural disaster, it can be a time where heroes are born. Those directly involved tend to gain a new appreciation of family and community.  Communities and cities quickly begin to rebuild. Whether from insurance monies, federal aid, or self-funding, where a building once stood, will stand another; built better than ever. The resolve of a people is tested when a natural disaster strikes. The proof of that resolve is shown in the weeks, months, and years that follow. Following on the heels of this devastating Atlantic hurricane season, there will now form a “bubble”.

This brings up a good point: With the approach of a “construction bubble”, are you building on the bubble or were you ready before it came along?

Unfortunately, Mother Nature will continue to throw us disasters. Whether it be hurricanes, tornadoes, earthquakes, or fire, rest assured they are still going to be part of our everyday lives. This will provide a supply of need for new residential and commercial construction  and will create a supply and demand effect. We are seeing that “demand” growing quickly. Disasters tend to grow the need for help, supplies, and resources. It is up to us to provide the “supply” part of this equation.

Before a bubble happens, you have your core business. Creating and maintaining a successful business is both difficult and rewarding. Maybe you are the business owner, a manager, or another employee. Regardless of your title, you are part of a business with a good foundation, ethical business practices, and working toward a good market reputation. Being in place before a bubble occurs allows you a certain advantage over those that will appear when the bubble does.

Those that build a business on the growth of a bubble are taking a huge risk. I have recently heard of a successful Engineer pulling up roots and quickly positioning himself in Florida to assist in storm clean-up efforts. In this rare instance, this will create a win-win scenario for everyone involved. He will, no doubt, make fantastic profits for this effort. The people of the region where he lands, will benefit from his desire to work and help them reestablish the local infrastructure and rebuilding. The question I want to ask is, “What happens when all the homes are rebuilt and the streets are clean?” This business model is dangerous for many reasons but most importantly a contractor should be reminded that a business must sustain between the bubbles of work. There are probably no better examples than the countless stories of those left behind after Hurricane Katrina struck New Orleans and the Gulf Coast region in 2005.

This is the danger of building a business on a bubble. You may be riding high one day, then the bubble pops! This moment is when a truly established business is separated from the bubble builders. If you have an established business that can be benefitted by a bubble, then you should appropriately expect that the bubble will disappear someday leaving you with your core business to still move forward. Healthy and sustainable business growth should include a long-term plan that is founded on sound business practices, ethical treatment of customers and vendors, and skilled labor with a passion for what they do.

A topic that is on the front of everyone’s mind (or, at least should be) is the skilled labor shortages that are facing the construction industry. Operating in rural Mississippi, we  see many companies struggling with the same things that many of our customers in metro areas are facing. Where do we find skilled people to fill the positions we need? Productive employees are those that find fulfillment in their daily jobs. In past years, day laborers have pretty much been treated as disposable line items that can easily be replaced. Successful businesses invest in apprenticeship and training programs for all that are willing to learn, work hard and advance.

There is no shortage of people with degrees, lengthy resumes, and more student debt than one should ever accumulate. At the end of the day, they have very little practical experience or marketable skills that fill the roles most needed. We are now presented with the task of training a new generation of laborers that are skilled at what they do and have a passion for building things. Investing in our people, paired with sustainable business practices, is a sure way to find yourself being successful between the bubbles.

This article is, in no way, an attempt to lighten the severity of the storms and disasters that affect our everyday lives. However, if we wish to provide help and services and gain from these events by doing our jobs, we must do it wisely and sustainably, so we can be prepared for when the next bubble appears.~

 

*Source: https://www.aia.org/press-releases/156966-architecture-billings-index-backslides-slig

 

 

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