Local building boom won’t go bust soon, report says

Honolulu Starbulletin - Wednesday, April 6, 2005 By Allison Schaefers Hawaii's construction industry, fueled by the residential housing market and military contracts, is poised for its longest uninterrupted expansion since the 1960s, according to a new report.

Forty years ago, statehood and population growth spurred long-term expansion. Likewise, the current expansion's modest growth is not likely to overheat and fade out right away, according to an annual construction forecast by the University of Hawaii Economic Research Organization.

"The current expansion is like one book end and the 1960s another," said Paul Brewbaker, Bank of Hawaii's chief economist, who co-wrote the report with UH economics professor Carl Bonham. "And, in between, we've had three cycles of boom and bust."

Hawaii's construction industry, which has been growing for seven years, will likely keep expanding for another couple of years, the report said.

"The sheer duration is what makes it this cycle stand out -- 10 years of growth of anything in the economy is remarkable in of itself," Brewbaker said.

But while the industry's growth has been sustained, it's not as robust as in previous years. In the 1991 peak, the value of completed construction projects was about $4.5 billion annually. Taking into account inflation, last year's $4.9 billion in construction and this year's expected $5.5 billion are significantly below the industry record, Brewbaker said.

"In a sense, all we've done has gotten us back to where we were, but that's the nature of construction's highs and lows," he said. "The investment cycle is still alive and well."

Business has been good, said Roy Demello, a foreman mason at Z's Contractors.

"These past years have been the best so far," said Demello, who has worked in the construction industry for nearly two decades. "Nobody's worried about anything."

Construction jobs, which grew 4.9 percent in 2004, will continue expanding this year and in 2006, according to the report.

But total commitments to build, which grew a robust 37.7 percent in 2004, are expected to decline this year from the bulge of government contracts executed in 2004. However, growth is predicted to resume next year with permits expanding by 8 percent.

Myron Nakata, president of Acutron Co., whose company provides insulation and fireproofing for the commercial and industrial sector, said he's seen first-quarter revenue grow about 10 percent over 2004.

"We are busy and we have a decent amount of backlog on our books," said Nakata, who has been adding workers. "From this point in time, we should be able to match 2004's revenues or exceed them."

Brian Awakuni, industry representative for the Masonry Institute of Hawaii, said an upturn in military spending, along with the residential housing boom, has given new life to his sector.

"Just looking at the horizon for the next two to three years, I see continued growth because there are so many pluses in our favor," Awakuni said. "But, if you look at the total and aggregate it would seem just beyond belief that we can actually grow that much more because our manpower is almost maxed out."

Local economic expansion is the driving force behind construction growth, the report said. Other forces include an increasing population, demand for resort properties by out-of-state, second-home buyers and low interest rates.

"Residential construction activity has been the dominant theme of the current cycle," Brewbaker said.

Ironically, the expectation that the rapid appreciation of Hawaii home prices could come to an end is the primary force to slow the construction upswing, he said.

"As these prices rise beyond what is 'affordable' and approach those found in the most expensive markets in the country, expectations of further increases will subside," the report said.

A lack of sites for high-rises and land zoned for housing development also could cause construction to level off, said Leonard Leong, vice president of Royal Contracting Co., which saw revenue grow 25 percent in the first quarter from a year earlier.

A shortage of skilled craftsman could also slow growth, but Leong said he expects continued solid performance within the industry.

"Last year, we had a pretty decent rise, and it will probably be slightly better this year," he said.

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