HOUSTON—The new tax bill will have both positive and negative effects on the construction industry, according to DRB Consulting LLC. The obvious effect is the reduction of the corporate tax rate from 35% to 21%.
The American Institute of Architects claims to have influenced the negotiations around the bill to have architects and engineers included as part of the reduced tax rate. Construction companies were included but no reduction in pricing is anticipated due to the reduced tax rate. In fact, DRB expects the contrary for a series of different reasons.
An important inclusion is that businesses will be able to quickly deduct the cost of property and equipment additions. These will be attractive to construction contractors who have a need or desire to make significant investments in expensive equipment such as heavy trucks, earthmovers and cranes.
The repeal of the Alternative Minimum Tax is also a help to all businesses. This is very important for all corporations, especially those in the construction industry. The new tax code will also be positive for accountants, bookkeepers and managers at construction firms, the report indicates.
What has not been cited as part of the bill is the impact on the already understaffed and over-capacity construction industry. These changes will require the industry to expand.
The downside for owners and developers is that the cost for construction services will go up, DRB predicts. This is inclusive of design services, construction services, materials and equipment. Estimates have included a forecast of a 6 to 8 % increase during the next year. One of DRB's projects was recently repriced by the general contractor and the overall increase was 6% but isolated vendors (elevators) increased 10%. DRB predicts this is just the beginning of what is to be the norm for the next few years.
On top of this news, the proposed American Energy and Infrastructure Act calls for leveraging public-private partnerships and private investments through tax incentives to spur $1 trillion in infrastructure investment for 10 years. If this holds true, it would mean more funding for renovation projects on highways, airports and railways, GlobeSt.com learns.
Fortunately, the construction worker is very transient and will go where the most work is located. The flip side is if there is a great deal of work near the worker's home, there isn't a need to travel.
What the industry needs is more workers to fill the construction jobs, says DRB. In the past, this has been filled by immigrants. However, it will be a challenge to find enough workers to fill empty labor and management positions.
Other challenges are facing the concrete, construction and building industries, according to Mike Wagner of Target Freight. He recently shared what he believes are the three most critical issues facing heavy freight in the United States. Â
The Electronic Logging Device mandate that recently passed is poised to improve road safety, but is creating significant rate increases and capacity issues related to driver shortages. In addition, Must-Arrive-By-Date issues that are affecting all areas of freight.
In the hyper-competitive construction industry, even a small overhead reduction can mean the difference between a winning and losing bid, says Wagner.
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Lisa Brown
Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.
