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President-elect Donald Trump’s stunning election victory on November 8 is expected to lead to significant shifts in the nation’s financial and regulatory policies that affect the U.S. construction industry. With a Republican-controlled Senate and House of Representatives, changes in other federal policies, such as immigration, may also affect plumbers, heating and HVAC contractors “We have Read more

President-elect Donald Trump’s stunning election victory on November 8 is expected to lead to significant shifts in the nation’s financial and regulatory policies that affect the U.S. construction industry. With a Republican-controlled Senate and House of Representatives, changes in other federal policies, such as immigration, may also affect plumbers, heating and HVAC contractors

“We have seen a continuing increase in federal regulation in the past eight years,” said Jim Tobin, chief lobbyist, National Association of Home Builders (NAHB), in a pre-election interview with Perspective Media. “Today, a full 25 percent of the cost of a home is due to the regulatory impact at the local, state and federal levels.”

During his campaign, Trump called for a temporary moratorium on new regulations. “We need to give our American companies the certainty they need to reinvest in our community, start hiring again, and expanding businesses,” he said on his website. “I will cancel immediately all illegal and overreaching executive orders and our most intrusive regulations, like the ‘Waters of the U.S.’ rule.” That would be followed by a thorough review of “burdensome regulations that are not necessary,” he said.

On the other hand, Trump’s call for tighter restrictions on immigration could have an impact on the construction sector, which relies heavily on foreign workers in many regional markets. Tobin said immigrant labor constitutes about 22 to 25 percent of the U.S. construction workforce. “We need to create a cohesive immigration policy that goes beyond the issue of undocumented workers,” Tobin said.

A focus on jobs

One of Trump’s campaign themes was a promise to create millions of new jobs and accelerate the growth of the U.S. economy. In his speeches, Trump said he would fulfill that pledge by reducing non-defense spending, lowering taxes and imposing penalties for companies that move overseas.

“We will reduce taxes across the board, especially for working and middle-income Americans,” Trump said during the campaign. “We will ensure the rich pay their fair share, but no one pays so much that it destroys jobs or undermines our ability to compete.”

Reducing business tax rates would be a boost to the contracting sector, which is dominated by small companies. Many contractors would also applaud a repeal of the Affordable Care Act, known as “Obamacare,” which imposed requirements on employers to provide health insurance to their workers. Repeal of Obamacare – with that employer mandate – is likely to be a top priority in 2017 for the new administration and GOP-controlled Congress.

Another issue facing the new administration is reauthorization of the national flood insurance program, which is set to expire in September 2017. “There were no policy discussions on flood insurance during the campaign,” Tobin said. “But natural disasters, like the summer flooding in Louisiana or Hurricane Matthew in North Carolina, are going to continue. We feel this is an incredibly important program for the country.”

Federal energy policy

President-elect Trump has called for making America energy independent, while protecting clean air and water.   In terms of policies, that may translate into greater production of traditional fossil fuels, and less of an emphasis on alternatives, such as solar power.

“We will unleash America’s $50 trillion in untapped shale, oil and natural gas reserves, plus hundreds of years in clean coal reserves,” Trump said on his website. “We will open onshore and offshore leasing on federal lands, eliminate the moratorium on coal leasing, and open shale energy deposits.”

He also called for encouraging the use of natural gas and other energy resources that will reduce emissions while also lowering the price of energy. “I want to eliminate all barriers to responsible energy production,” he said.

However, what that energy policy change means for manufacturers and installers of water heaters, boilers, air conditioners and other household appliances remains to be seen. There may be fewer incentives for developing energy-saving technology, but cost factors and consumer market demands also come into play in manufacturers’ product decisions. It’s possible we may see a decrease in demand of specific products and technology in certain sectors, and a rise in demand of others.

2016-election-results-for-construction

An increase in housing starts?

Prior to the election, the National Association of Home Builders forecast a 10.1 percent increase in housing starts in 2017, rising to 1.258 million from 1.143 million this year (see chart). Much of the increase would be in the single-family segment, rather than multifamily housing.

The NAHB also projected a small rise in the Federal Reserve rate, along with an increase in the average 30-year fixed-rate mortgage from 3.56 to 3.79 percent.

However, the U.S. and global financial markets, as well as consumer perceptions, could change that forecast. Those financial and market forces will also shape the outlook for the commercial contracting industry in the coming year.

For example, a potential downturn in the stock market could make it more difficult for large, publicly traded homebuilders to finance new subdivisions, rental apartments and condominiums. That could create market opportunities for smaller builders and other contractors who finance their projects using their own resources or loans from local banks.

Homeowners who have lost investment funds and feel their financial futures are uncertain are less likely to purchase new homes or invest in renovations, such as kitchens, baths or add-ons. On the commercial side, the same issues will have an impact on the office, industrial and retail markets, perhaps leading to a slowdown in new construction.

If Trump’s policy on jobs and regulations boost the economy as he predicts, we could see a boom in commercial construction and the housing market to follow if we see an increase in jobs.

In any case, the short- and longer-term impact of Trump’s administration on the contracting sector will become clear in 2017 and even more so in 2018. And as Tobin said, “Homebuilding is a huge driver for the nation’s economy, and NAHB will continue have access to the White House and Congress in the coming year.”