In case you did not notice, the major problem in the economy is weakness in the construction industry. Although recovery has taken place in most sectors, construction, particularly residential construction, continues in the doldrums.
To put a statistical face on this, the dollar value of residential construction peaked at $620 billion in 2006. In the next four years, it tumbled by 60 percent to $249 billion. Non-residential construction, however, did not peak until 2008 ($710 billion) but fell suddenly to $555 billion in 2010.
If you pause to think about it, it makes plenty of sense. Fewer new homes mean fewer retail stores and fewer new commercial buildings because we build new homes in places that do not have many retail and commercial building to begin with. We want our housing to be away from all the traffic and bustle that swirls about business districts. But retailers and others who serve us look for new roof-tops to find new dollars.
The people who build new homes are quick to tell us that we need to get the economy moving again by once more building massive numbers of new homes. Others tell us there are too many new homes sitting vacant in too many markets to justify building more new homes. “We have to work down the inventory,” they say.
With such a heavy inventory of unsold new homes, lenders are reluctant to lend to developers unless they have signed contracts for those unbuilt homes. Few buyers of new homes are willing to sign such contracts because they can easily buy new homes that are already built.
“What is to be done to put all those carpenters, plumbers, electricians, and other craft people back to work?”
The answer is apparent, but virtually nothing of significant magnitude is being done.
Carpenters, plumbers, electricians and others are needed to rehabilitate existing housing all over America, particularly in our older cities. The boom in new housing during the past decade gave us grotesque extensions of urban sprawl. Now we have an opportunity to make our old cities, including many old suburbs, more livable.
A reduction in urban sprawl reduces energy demands by homeowners. Rehabilitation reduces energy demands for heating and cooling. Repopulating our cities reduces the need for new schools and for extensions of our utilities into farming country. Repopulation of our cities will increase the demand for rehabilitation of our existing and decaying retail and commercial areas.
In short, all across the nation the demand for construction workers will rise and a major segment of unemployment will be reduced.
“But where is the money to come from for this major effort?” There is no shortage of money. Hundreds of billions of dollars are sitting idle in the balance sheets of banks and corporations. With low interest rates and uncertainty about the economy, those dollars are not invested in building the nation.
If the federal government issued 10-year bonds that offered higher interest rates, firms would be encouraged to buy those bonds and provide the money for rehabilitating our housing stock. “But where would the government get the money to repay those bonds?”
The answer is clear. Future federal budgets would not require as much money for extending and widening our roads, for sewers and schools, for hospitals and other institution needed to accommodate increased urban sprawl. Those savings could be used to repay the rehab bonds.
By not building new homes, our country can reduce unemployment, make our cities more livable, and, perhaps, restore some civility to our society.
Morton Marcus is an independent economist, speaker, and writer formerly with IU’s Kelley School of Business.
Business
MORTON MARCUS: The opportunity to make old cities more livable
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- RESTAURANT INSPECTIONS: May 21, 2012
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EYE ON THE PIE: Use to be close tie between output, employment
Crusty Crawford joined our lunch table with a pronouncement. “We’ve always assumed a close tie between output and employment,” he said. No one responded.
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Employer opinions sought on students
A joint venture between Ready Indiana and the Indiana Department of Education is seeking employer input that will impact how Hoosier high school students are equipped for the workforce.
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Carlisle prison marks 20th anniversary
2012 marks the 20th year of service for the Wabash Valley Correctional Facility, going on line with its first offenders Dec. 10, 1992.
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SOCIAL SECURITY: Why young workers should care about Social Security
Summer will be here before we know it.
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BUSINESS CENTS: Does your staff understand pricing?
Many companies feel as though their staff will follow instructions and implement price strategies as instructed.
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Valley Child Development Center receives grant
Valley Child Development Center has been awarded a $5,000 grant from the Terre Haute Day Nursery Foundation through the Wabash Valley Community Foundation.
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Exec offers advice on becoming startup entrepreneur
Sam Clemens, chief product officer of Cambridge, Mass., startup company Insight Squared, gave Rose-Hulman Institute of Technology students insight on how to develop a startup business.
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Newsmakers: May 20, 2012
Leland Phipps, family practice physician at Paris Community Hospital/Family Medical Center, has been re-elected to membership with the American Academy of Family Physicians.
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Alumna to serve as VP for Rose-Hulman Ventures
Rose-Hulman Institute of Technology alumna Elizabeth M. Hagerman is returning to her alma mater to serve as vice president for Rose-Hulman Ventures, the institute’s successful innovation space that has spawned careers and entrepreneurial enterprises throughout Indiana.
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Summer Sidewalk Sale set
Marshall Main Street’s Downtown Summer Sidewalk Sale is planned from 8 a.m. to 2 p.m. June 9.
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Oil drops to lowest level in 6 months
The price of oil dropped to a six-month low Tuesday on concern that economic uncertainty in Europe could hurt demand for crude.
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Adidas initiative: ISU students develop business improvement process at facility
As Indiana State University students cruised Interstate 70 on Friday afternoons from Terre Haute to Indianapolis, they were looking forward to reaching their destination.
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BUSINESS BRIEFLY: May 13, 2012
An evening of networking and education for Clark, Crawford and Edgar counties regarding branding, marketing and tourism development opportunities is planned for 6:30 p.m. May 21 at the Heath Museum on the square in downtown Robinson.
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Wendy’s partners with Riley Hospital
For just $2, customers at participating Wendy’s restaurants in the Evansville/Terre Haute area can get free Jr. Frosty desserts through Dec. 31 while supporting Riley Hospital for Children at Indiana University Health.
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Marshall Chamber to stage annual golf outing
The Marshall (Ill.) Chamber of Commerce invites golfers to its annual golf outing scheduled for June 8 at the Marshall Golf Course.
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ON THE MOVE: May 13, 2012
McKenze Rogers has joined Williams Randall as an account supervisor.
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Seminar teaches seniors to fight fraud
The Federal Trade Commission estimates that 25 million Americans are victims of consumer fraud each year.
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EYE ON THE PIE: Economic tools for consumers, workers, business owners, officials
My friend is a carpenter. He has two heavy boxes of tools and several other containers with stuff.
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SOCIAL SECURITY: Potential Medicare savings for mom
Given the current economic climate, buying a nice gift for Mother’s Day may be more difficult than in years past.
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‘Best Places to Work’ honored at banquet
Companies raising the bar with their workplace practices were recognized on May 3 at the Indiana Roof Ballroom by the Indiana Chamber of Commerce.
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NEWSMAKERS: May 13, 2012
Susi Willis, CPA and partner in Larsson Woodyard & Henson, LLP, was recently presented with the Distinguished Service Award by the Indiana CPA Society at its annual CPA Celebration at the Indiana Roof Ballroom in Indianapolis.
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Indiana Rail Road wins Family-Friendly Award
The Indiana Rail Road Co. has won the Terre Haute Chamber of Commerce’s “Family-Friendly Business Award” for 2012 based on the company’s highly successful employee wellness program.
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Government cuts summer gasoline price forecast
The government says gasoline will be cheaper this summer than previously expected thanks to a drop in the price of oil.
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Mall operator becomes biggest real estate company
The nation’s largest shopping mall operator is now also the country’s largest real estate company.
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Dealership to celebrate first year
The 500 Automotive Group in Clinton will celebrate its first year in business with an big birthday bash at the dealership on Friday and Saturday.
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EYE ON THE PIE: Compensation levels did not cause the recession
America is still fascinated with “The Price is Right.”
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Old National begins year with strong first quarter
Old National Bancorp reported 1st quarter net income of $21.7 million, or $0.23 per share.
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Enroll in disaster preparedness class
The University of Illinois Extension is offering a disaster preparedness course on May 23 for Clark, Crawford and Edgar county businesses called Ready Business.
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Newsmakers: May 6, 2012
• Dr. Haytham Mansour
• Terre Haute Regional Hospital
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