Construction Outlook

NAIOP New Mexico, the Albuquerque centered commercial real estate developers group, had two lunch speakers today. One provided useful information. The other provided information that was interesting, though especially useful in the short term, and was different than promised.
Ken Simonson, chief economist for AGC of America, brought the value. In particular, at least for this industry observer, his observations about highway construction costs help frame the nasty transportation problem facing New Mexico. Construction costs are up 70% in the last five years. That is mostly because petroleum is the number one ingredient in building highways. The petroleum turns into asphalt and the diesel that fuels the big and small machines. Diesel fuel has nearly doubled to $.76/gallon since the beginning of 2007. Other petroleum-based construction materials are getting pressure. These include PVC pipe and vinyl pipe—basically anything made from petroleum.
For commercial construction, the producer price index is up 41% in the last five years as compared to 19% for the general CPI.
Non-residential construction comes under 11 categories, Simonson said. In dollar volume, all were up in 2007. All are expected to be up in 2008, but only by four to-eight percent. These dollar increases reflect materials cost.
Simonson chairs the forecast committee of the National Association for Business Economics. That post puts him in the top handful of economists nationally. A summary of NABE's latest quarterly outlook, released today, is available at http://www.nabe.com/publib/indsum.html.
Speaker number two was Lisa Martinez, director of the New Mexico Construction Division. Her topic was supposed to be, "Impact of Governmental Codes." She made repeated reference to "Governor Richardson's executive order" when one reference would have been fine. In so doing, perhaps she provided a clue to the administration's management approach.
Martinez's topic, other than the executive order, was a very general summary of the administration's green building goal, which, basically, is to be an early adopter of "advanced energy codes" from anywhere, but with modifications for New Mexico. Spending the two to-five percent more on green building approaches in new buildings will bring a ten-fold return over the building's life cycle, Martinez claimed, without explanation. Given the the artifice of accounting has little to do with life cycles, how exactly the accounting would work, she also did not explain.
Lobbyists be advised. Martinez mentioned, somewhat in passing, that "'point of sale' legislation may be considered in New Mexico." Such rules, she explained in no detail at all, require energy-related modifications in structure at the time of sale. Scary.