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Alex Carrick, Chief Economist at ConstructConnect
Alex Carrick, Chief Economist at ConstructConnect
Alex Carrick is Chief Economist for ConstructConnect. He is a frequent contributor to the Daily Commercial News and the Journal of Commerce. He has delivered presentations throughout North America on the Canadian, United States and world construction outlooks. A trusted and often-quoted source for … More »

Eight Demography Charts that Explain U.S. Construction Activity

 
January 7th, 2016 by Alex Carrick, Chief Economist at ConstructConnect

Article source: CMDGroup

Talk to a demographer and he or she is likely to tell you that everything important that is happening in society and business can be explained by their practice or science.

As an economist, I don’t fully subscribe to such an assertion. Besides, what would I do if I didn’t have interest rates, inflation and government policy to mentally juggle as well as the study of demography?

But I don’t dismiss the claim out of hand either.

It does warrant admitting that population level, change and age-structure over time are key determinants of construction activity in several major type-of-structure categories.

That will be the focus of this Economy at a Glance, in two parts. The story will be told through the use of eight graphs.

The data comes from the Census Bureau. 1950 up to 2014 numbers are ‘actuals’; 2015 through 2060 are projections. The latter adopt standard (i.e., as opposed to outlier) assumptions about fertility rates, births, deaths and net immigration.

Graph 1: Demographics as a Driver of U.S. School Construction:
Key Population Cohort for Kindergarten to Grade 12 (i.e., K to G12) Attendance
(Number of individuals aged 4 to 17) **

US-Pop-History-and-Projections-(Jan-16)-1

Graph 1 sets out the number of Americans aged between 4 and 17 each year. There was an early prominent bump in the curve that occurred during the 1960s and 1970s. It resulted from the post-World War II baby boom, which extended from the mid-1940s to the mid-1960s.

The need for additional educational facilities to serve students in lower and middle grades quickly became self-evident and there was a boom in school construction.

A secondary bump in the curve developed throughout the 1990s. This arose from the ‘echo’ boom. There was another surge of births as original baby-boomers began to have their children.

But there has been a clearly-apparent leveling off of the slope in the most recent years and, going forward, it is trending upward, but ever so gently. On this basis, the long-term outlook for primary and secondary school construction must be judged somewhat restrained.

Graph 2: Demographics as a Driver of U.S. School Construction:
Key Population Cohort for University and College Attendance
(Number of individuals aged 18 to 26) **

US-Pop-History-and-Projections-(Jan-16)-2

Graph 2 looks at the annual population levels of individuals most likely to enroll in colleges or universities. A peak is just now being reached and there will be little movement in the series for the next two decades, out to the mid-2030s when a mild upward trend will begin to re-appear.

Therefore, don’t look for tremendous growth in post-secondary school construction for a fairly prolonged period; at least, not of the sort that is demographic-driven.

Graph 3: Demographics as a Driver of U.S. New Home Construction & Resale Activity
Key Population Cohort for First-time Homebuyer Demand
(Number of individuals aged 27 to 40) **

US-Pop-History-and-Projections-(Jan-16)-3

Graph 3 shifts the focus to residential real estate demand. Its curve suggests the weakness in new home construction over the past decade may have been due to more than just the Great Recession.

The population cohort – i.e., those aged 27 to 40 − accounting for the lion’s share of first-time home-buying demand softened in the front half of the 00s relative to the back half of the 90s.

The 27-to-40-year-old age cohort is set to expand rapidly from now on, however, indicating better prospects for new home ground-breakings, with a positive impact on resale markets as well.

Graph 4: Demographics as a Driver of U.S. New Home Construction & Resale Activity
Key Population Cohort for Move-up Demand
(Number of individuals aged 35 to 55) **

US-Pop-History-and-Projections-(Jan-16)-4

Graph 4 carries some significance for new home construction as well, but it’s probably more relevant for sales of existing homes. It features the population cohort – i.e., those aged 35 to 55 – most likely to participate in the move-up residential real estate market.

Over the last seven years, there has been a mild retreat in this cohort’s numbers that won’t begin to pick up speed again until early in the 2020s.

Space constraints force me to pause here. Part 2 will explore the outlook for construction of seniors’ homes and how the labor market will be affected by a changing dependency ratio.

The previous Economy at a Glance studied the effects that changing U.S. population levels in various age cohorts have on the construction of schools and new homes.

This current EAAG will extend our tale of demography’s influence, while employing an additional four graphs.

The base data in the charts comes from the Census Bureau. Numbers prior to 2014 are ‘actuals’; those from 2015 to 2060 are projections.

Graph 5: Demographics as a Driver of U.S. Retirement Home Construction
Key Population Cohort Seeking Longer-term Care
(Number of individuals aged 80 and older) **

US-Pop-History-and-Projections-(Jan-16)-5

Graph 5 shows the dramatic increase in demand for seniors’ homes that is assuredly on the horizon, based on a rapid take-off in the number of U.S. individuals aged 80 and older beginning in the early 2020s and skyrocketing later in that decade.

Naturally enough, this arises from the aging process, as post-World War II baby boomers − i.e., those born between the mid-1940s and the mid-1960s – step well down the hallways of their life journeys.

Everyone has known this phenomenon is underway. There may, however, have been a tendency to jump the gun in terms of what this would mean for construction of seniors’ residences.

The first baby-boomers have moved past the traditional retirement age of 65. But that doesn’t mean they are immediately seeking accommodation in assisted-living facilities. Rather, many of them are continuing to enjoy decent health while also often staying gainfully employed.

The age cohort at which medical issues and a need for watchful care become bigger factors has been pushed further out into the future. For most individuals, it won’t begin before the age of 80, if even then. The big wave from 80-year-olds-plus won’t arrive until the mid-2020s.

At that point, huge additions to the inventory of long-term residential space will be required.

Proceeding with too much related construction sooner risks getting ahead of oneself.

Graph 6: Demographics as a Driver of U.S. Societal Change
Key Population Cohorts not Considered to be Working Age
(Number of individuals aged 0-to-14 as well as 65 and older) **

US-Pop-History-and-Projections-(Jan-16)-6

Graph 6 highlights the changing relationship between the youth component (aged 0 to 14), in the overall U.S. population base, and the elderly segment (aged 65-plus).

In the portion of Graph 6 prior to the forecast period, the youth element clearly predominated versus the older faction. There will be a crossover point in 2024, however, after which the snow-on-the-roof contingent will increasingly outnumber the pre-driving-license crowd. (That’s if anyone will still need an official sanction to be on the roads once driverless cars proliferate.)

Governments all over the world, worried about pension and medical costs, have been fixating on austerity as a means to deal with aging populations that are elevating dependency ratios. The dependency ratio is the proportion of young (0-to-14) plus old (65-plus) relative to the working-age population (15-to-64).

Graph 7: Demographics as a Driver of U.S. Labor Market Change
Dependency Ratio (young people aged 0-to-14 as well as those aged 65-plus
as % of working-aged population aged 15-to-64) **

US-Pop-History-and-Projections-(Jan-16)-7

Graph 7 shows a U.S. dependency ratio that is currently almost exactly 50.0%. Because of the increasing ranks of the elderly, the U.S. dependency ratio will be gradually rising over the next several decades to reach 67% by 2060. Whereas there are now six workers to support six dependents, by 2060 there will be only four workers backstopping six others. (By definition, the formula ignores the present-day proclivity for more 65-plus individuals keep on job-trekking.)

Further substantial leaps in productivity will be a must to sustain a good nation-wide quality of life.

Once again, though, maybe the anxiety is being overblown. The dependency ratio in the 1960s, when baby boomer births were at their peak, was actually higher, at almost 70%.

America’s dependency ratio is quite favorable globally, according to data compiled by the United Nations. Consider countries in Europe: Germany, 52%; Portugal, 53%; United Kingdom, 54%; Denmark and Greece, both 55%; Italy, 56%; Sweden, 58%; and France, 59%.

Japan’s dependency ratio is 63%; Mexico’s, 52%; but in Canada, only 46%.

In Africa, where birth rates are generally higher and AIDS has ravaged the adult population, dependency ratios are generally much more elevated: e.g., Kenya, 81%; Nigeria, 88%; Mozambique, 96%; and Uganda, a staggering 104%.

Graph 8: Demographics as a Driver of U.S. Societal Change
Number of Individuals Aged 100-plus **

US-Pop-History-and-Projections-(Jan-16)-8

Finally, Graph 8 is one of my favorites. It charts the upward march in the number of U.S. citizens aged 100 or more.

There used to be so few centenarians that the Census Bureau didn’t bother to keep a numerical tab on them before 2010. Their number is forecast to increase from about 70,000 today to 600,000 by 2060. That’s more than an eight-fold gain.

In other words, by 2060, more than half a million people who will be able to refer to everyone else in society as whipper-snappers.

Finally, anticipating a question you may be preparing to ask, yes I will be working on similar demographic graphs and analyses for Canada over the next couple of weeks.

** All Graphs  – Data source: Economy.com and Census Bureau (‘Middle Scenario’).
Chart: CMD.

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Category: CMD Group

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