Wichita construction industry on the rise, statistics show (+video)

If the Wichita economy is indeed treading water – as experts have indicated – nobody bothered to tell the construction industry.

For the first time since August 2008, U.S. Bureau of Labor statistics showed that nearly 18,000 people worked in the “mining, logging and construction” industry during a monthlong period in the Wichita area.

An estimated 17,700 jobs were appraised for the sector – which is dominated by the construction industry in Wichita, where logging and mining jobs are few – in September, representing the largest number since 17,900 were pegged for August 2008, before the most-recent U.S. economic downturn settled in.

“Generally, construction takes a while to catch back up,” said Emilie Doerksen, a labor economist with the Kansas Department of Labor. “It didn’t grow very fast for a while, but, on a broad level, construction is now really catching up to pre-recession levels.”

Similar numbers provided by the bureau’s Quarterly Census of Employment and Wages, generally seen as a more firm data set, show that 14,729 construction jobs were documented for the Wichita area in 2014, representing an 11.8 percent increase from a 10-year low of 13,175 reported for 2011.

Although the quarterly census numbers are generally lower, the overall trend is basically the same: Wichita’s construction industry is in much better shape than it was during the recession.

“The construction industry here is very healthy,” said Tom Dondlinger, president of Dondlinger Construction. “There’s not one sector that is dominating, there’s a little bit of construction going on in every sector: retail, aviation, health care, education and cultural.

“From the economic collapse of 2008 and 2009, I think we’re seeing the results of a lot of pent-up demand.”

The big picture

While construction seems to be humming along, the forecast for the overall Wichita economy isn’t as positive.

Last month, Jeremy Hill, director of Wichita State University’s Center for Economic Development and Business Research, released a report predicting that Wichita would grow its labor force by just 1.1 percent in 2016. Since 2011, Wichita has gained only about 10,000 jobs, according to Hill’s numbers.

What do the positive construction numbers mean for the broader Wichita economy? Hill said there may not be an easy answer to that question.

“Construction is much more flexible than other industry segments,” Hill said. “There are a number of forces behind why there would be more consumption, especially multifamily and higher-end residential housing.

“Part of that is delayed or pent-up demand, part of it is different income segments, and part of it is the timing of bond financing. All those market forces could drive demand at any given point in time. Construction can be a great indicator of what’s going on and where investments are going, but it can be messy to include it as a core (economic) indicator.”

Unlike other segments of the economy, Hill said, construction is more like an octopus with different tentacles that reach different areas.

“The construction market has different parts with different cycles, and they’re used to that,” Hill said. “Sometimes residential is stronger, and sometimes commercial or industrial will be stronger.

“Today in Wichita, you see firms that offer a much more broad range of services. Firms used to have kind of a boa constrictor mentality where they would get work and then starve for a while, but I’m not so sure that’s the case here any longer.”

Bonds and apartments

Dondlinger’s firm, which employs about 300, is working on the expected 2016 completion of a new Southeast High School, which was the big-ticket item from a $370 million Wichita school district bond issue passed by voters in 2008.

The 2008 bond issue followed a $285 million issue passed by voters in 2000, though the latest bond projects are nearing completion, meaning a steady stream of projects will soon dry up.

“The two school bond issues really kept our industry strong,” Dondlinger said. “The first bond issue was during 9/11 and the last one was during the 2008 recession. Both were saving graces for our industry.

“If the economy takes a turn for the worst and we don’t have those things to keep us afloat, there could be a concern if the private sector doesn’t replace those potential losses. Right now, that’s not a concern, but it could be later.”

Rick McCafferty, executive vice president of Key Construction, said he has generally seen the same trend in his company’s business as what the quarterly census numbers illustrated for the past few years.

“The climate in the construction industry has improved a lot in the past couple years,” McCafferty said. “I wish I knew exactly why, but it’s probably a combination of factors.

“First off, interest rates are still very favorable, which is a good thing when you’re financing a construction project. There’s also a little more certainty in the economy. In addition, when things were really bad, beginning back in 2008, there were projects that people were skeptical about, and people are maybe doing those projects now. We could be playing catch-up.”

Key has kept busy lately with a number of high-profile projects around Wichita, including being one of the lead contractors for the new terminal project at Wichita Eisenhower National Airport that was completed earlier this year.

The company also is working on a project that will change the Exchange Place building downtown into apartments, which is one of several major downtown construction projects targeted for completion in the next couple of years.

“Multifamily projects, such as apartments, have been a strong area for us lately, too,” McCafferty said. “We’ve seen quite a few starts in that sector. I don’t know what’s driving that, but it certainly could be the fact that some people aren’t wanting to be tied down with a 30-year mortgage.

“You would think that this market would eventually become saturated, but it’s a numbers game. If the demand is out there, you build it.”

On the home front

Along with the overall trend, new-home sales in the Wichita area have been rising of late, too. A total of 52 new-home sales were reported by the South Central Kansas Multiple Listing Service for September, which represented a jump of 41 percent from the same month in 2014.

With three months yet to be recorded this year – although the market is entering the slower winter months – the listing service reports that there have already been nearly as many new-home sales (417) as there were for all of 2014 (428).

For the 10 years ending in 2009, the Wichita metro area averaged 2,263 new-home permits annually, according to numbers provided by the Wichita Area Builders Association. Beginning in 2010, however, that yearly number didn’t get back to the four-digit threshold until last year, when 1,012 permits were issued.

According to the 2016 Kansas Housing Markets Forecast, an annual report commissioned by WSU’s Center for Real Estate, housing starts are projected to increase to about 1,065 this year.

“In 2014, new housing starts went up … a little bit,” said Wess Galyon, president of the Wichita Area Builders Association. “I think we’re going to end this year up about 5 percent, which is a little bit more than what the WSU report predicts.

“There’s also expected to be an increase for 2016, so I think the point is that, after we got through this recession, what we have is competitive mortgage rates and a real value in prices for new housing. It’s as good as it’s ever been, frankly.”

With projects continuing to be proposed and worked on, and the number of people wanting to build new homes increasing, the near-term outlook for the Wichita construction industry seems bright.

Contractors – and the subcontractors that go with them – have work. But with no monster projects on the immediate horizon – like an Intrust Bank Arena or a new high school – the industry, as Dondlinger said, may soon become more dependent than it has been on private sector investment, which has a tendency to dry up when the economy tanks.

“Are we back to where we were before the recession?” Hill asked rhetorically. “No, we’re not, and I’m not sure we’re going to get there. The whole structure has kind of shifted in construction.

“It’s probably not going to get a lot better – we’re probably as good as we’re going to be in this weak economy.”

This story was originally published October 28, 2015 at 8:26 PM with the headline "Wichita construction industry on the rise, statistics show (+video)."