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Is the Boom a Bust?

Activity is up, unemployment is down, but many in the construction industry.

According to the statistics, Hawaii is experiencing a significant upturn in construction activity. Recent Department of Business, Economic Development and Tourism numbers have the value of building permits increasing by 25 percent in the second quarter of 2000. Most of this growth was fueled by a 27.1 percent increase in residential permits and a 41.3 percent rise in permits for additions and alterations. For single-family homes, the number of building permits rose at a double-digit rate for the third straight quarter. And jobs are also on the rise; 22,800 people were employed in the construction industry for the first quarter and 23,600 in the second. Those are increases over last year of 8.8 and a 10.3 percent respectively, the first gains since 1993.

But if the numbers are so good, why aren’t industry representatives a little more enthusiastic?

“We in the construction industry have been suffering for so long that it is very difficult to feel confident about anything,” says Ronald I. Taketa, financial secretary and business representative of the Hawaii’s Carpenters Union. “I’m not convinced that we’ve pulled out of this latest slump. The bad times may be over but the good times certainly haven’t begun.”

According to Taketa, employment rates for the union is up—the best that it has been in years. Of a membership of approximately 5,400, currently about 400 have yet to find jobs. That is down from about 1,000 unemployed last year and 2,400 about five years ago. Taketa attributes the surge to an increase in tract home construction over the last couple of years. In particular, the union has been hard pressed to fill positions for metal framing carpenters. (Metal framing is increasingly the construction method of choice for contractors.) But Taketa believes that the numbers, however encouraging, tell a different story.

“I think that this rebound is an unbalanced one,” says Taketa. “We have almost full employment in certain sectors like metal framing but have high unemployment rates in others like form work (concrete work for foundations of large buildings), for instance. Housing is growing but you aren’t getting a corresponding movement in the other areas—large developments, apartment buildings and schools. That sort of thing worries people in the construction industry.”

“This is not a boom,” says Ken Spence, vice president and CFO at Nordic Construction. “The work is sporadic but that might be the reality for a while. We don’t see anything on the horizon that would indicate a huge foreign investment like the Japanese did in the late ’80s.”

Even the contractor who has benefited most from this latest housing surge is cautiously optimistic at best. Coastal Construction, one of the largest metal framing contractors in the world, predicts that earnings in 2000 will be over $60 million, a 28 percent increase from ’99. But the big increase may not be duplicated in 2001, according to Coastal’s controller, Alan Ginoza.

“We are really at the mercy of the real estate market and that has been up and down,” says Ginoza. “Things started to pick up in June when Castle and Cooke ran out of inventory and needed new construction. We were up to 420 employees, our most ever. But now we are back down to our normal levels. It’s really hard to tell how things will go.”

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Hawaii Business,January