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Deconstructing economic theory

Construction activity up in Charlotte despite sluggish economy

CHARLOTTE – Traditional economic theory says people follow jobs.

In the Queen City over the last four to five years, however, jobs have either decreased or remained relatively stagnant while the city continues to attract migrants, said Bill Graves, assistant professor of economic geography at the University of North Carolina at Charlotte.

Traditional economic theory also says that construction activity doesn’t usually pick up when jobs aren’t increasing.

But Graves said the city isn’t operating in line with traditional economic theory.

In fact, at least in Mecklenburg County, construction activity is actually up this year over last.

From Jan. 1 to Aug. 22, 2012, the county issued 10,765 building permits, valued at $1.60 billion. Over that same period this year, the county issued 11,235 permits, a 4.6 percent increase. Permits issued this year are worth $1.65 billion, up 3 percent over last year.

Permit activity isn’t the only indicator that construction activity is up in Charlotte. According to a report by the Associated General Contractors, construction jobs – including forestry and mining – in July 2013 were up 4 percent compared to July 2012. The AGC reported that the Charlotte area had 40,800 construction jobs last month, up from 39,300 in July 2012.

But overall, according to the U.S. Bureau of Labor Statistics, the July unemployment rate in North Carolina was 8.9 percent, the third-highest rate in the country, above only Nevada and Illinois.

In June, the Charlotte metropolitan area, which includes Gastonia and Rock Hill, had 86,000 unemployed workers from a total workforce of 930,000. The area unemployment rate of 9.3 percent is up from the May rate of 8.9 percent, but down from the June 2012 rate of 9.9 percent, according to the bureau.

But even with an increasing unemployment rate, construction in the county continues to pick up momentum. Graves said he has a couple of theories on why the city is defying economic trends.

“I’d say it’s one of two possibilities,” he said. “It’s either pent-up demand from during the recession that they’re just catching up on, or it’s that developers are paying attention to the growth in (migration).”

The migration could be what’s making the difference, Graves said. It’s not just that people are coming into Charlotte, it’s the demographics of the people coming. Based on his observations, Graves said the majority of migrants are young and college educated.

“The unemployment rate for college-educated people is much lower than the general population,” he said.

Not only does this set of migrants have jobs, but they’re also looking for a specific type of housing: well-positioned apartments, which are probably the hottest item currently in commercial construction. From South End to NoDa, multifamily projects rapidly are popping up in Charlotte.

Of the five most-expensive construction projects permitted this month by Mecklenburg County, the top three projects are apartments. Carnegie Boulevard Apartments, Summit at Church Apartments and Enclave at Rivergate Apartments were issued a total of $96.2 million in permits, according to county records.

The most valuable building permit of the year was also awarded for an apartment project: a nearly $52 million permit issued for South Mint Apartments.

Dave Simpson, government relations and building director for Carolinas Associated General Contractors, said he doesn’t expect multifamily development in the area to lag any time soon.

“Right now the strong areas are multifamily housing, there still is a demand for apartments,” he said. “People are having trouble coming up with the money to put down on a mortgage, so they’re renting.”

Though construction activity – especially multifamily – is healthy in the Charlotte area, Simpson said the sputtering economy has had more of an effect in other parts of the state.

“The public construction work out there is somewhat flat,” he said. “A lot of private construction work isn’t materializing, banks aren’t lending money right now. We’re still not out of the woods.”

Simpson did say he’s seeing some signs of statewide construction recovery.

“Everything I’m reading and hearing is calling for modest increases,” he said. “Residential construction, which was a problem spot, is improving.”

And Graves said he doesn’t think there is heavy economic trouble looming – at least nothing that would stifle Charlotte-area construction.

“I can only speak obliquely about the future,” he said. “But I think we’re looking at growth.

“I don’t have that feeling in my gut that something disastrous is on the horizon, and I think the data I’m seeing shows we’re not headed for more trouble.”

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