It is said that demographics is destiny. Perhaps no segment of the nation’s nonresidential construction sector provides as powerful support for this statement as education.

At least some of the recent decline in education-related construction is attributable to shifts in student population. America’s population is punctuated by two large generations: the baby boomers and their children, often referred to as Generation Y, millennials or the baby boom echo (presently between the ages of 14 and 34).

As an example of how powerful these demographics are, K-8 school enrollment decreased 0 percent, 0.2 percent, 0.3 percent, 0.3 percent and 0.1 percent per annum from 2005 to 2009, according to McGraw-Hill Construction. It comes as little surprise that K-8 construction has been suppressed ever since.

On the other hand, many of those who have graduated from elementary, middle and high schools are now in college. As such, during that same time period, college and university enrollment expanded by 1.2 percent, 1.6 percent, 2.8 percent, 4.7 percent and 6.9 percent, respectively. The large increases registered during 2008 and 2009 reflect another factor: the Great Recession.

As a result of more young people deciding to enter or remain in post-secondary settings rather than testing the labor market, construction spending has demonstrated far more stability in higher education categories. According to McGraw-Hill Construction, college and university construction starts dipped after 2008, and by 2012 the volume of construction starts measured in square feet had fallen back to 2005 levels.

The decline in K-12 school starts was far more severe. Construction starts peaked in 2001, when Generation Y would have been between the ages of 3 and 23. At that time, K-12 starts measured in square feet began to decline, largely because of the fiscal aftermath of the 2001 recession. By 2004, construction starts had stabilized, but as the Great Recession dawned, a steeper decline took hold. By 2012, the volume of K-12 construction starts had fallen well below the 1990 level. The cumulative decline in K-12 school construction is nothing short of shocking. In 2001, construction starts in this category approached 200 million square feet. By 2012, construction starts had declined to roughly 75 million square feet.

The Tide Turns
With the Great Recession now five years in the rearview mirror and with demographics beginning to turn in a new direction, education-related construction has begun a steady rebound. Between 2014 and 2018, K-8 enrollment is projected to advance 0.5 percent, 0.6 percent, 0.8 percent, 0.8 percent and 0.9 percent per year. The increases are partially traceable to trends in immigration and the fact that an expanding portion of Generation Y is entering the age of family formation. High school and post-secondary enrollment is also expected to rise, though the increases in college enrollment will fall well short of the boom sustained between 2007 and 2010.

According to School Planning & Management, 2012 represented the first time in five years that the total value of K-12 construction put in place grew relative to the prior year. The increase was quite small: $700 million compared to a five-year decline approaching $8 billion.

Reflecting both recent trends in enrollment and fiscal realities, effectively all of the increase in spending was attributable to repairing and enlarging existing structures. The most common forms of school modernization investment were electrical overhaul (included 48 percent of the time in retrofit projects), HVAC (45 percent), plumbing (28 percent), lighting (28 percent) and roofing (26 percent). The amount of money spent on new schools continued to decline through 2012.

In 2013, school construction rose just short of $400 million. Interestingly, the completion of new buildings drove the increase. Spending on completed new buildings expanded by $1.4 billion compared to 2012, when it achieved a 16-year low, while spending for additions and retrofits actually retrenched.

Looking Ahead
Despite twists and turns, Planning4Education.com notes that education building still ranks first in the nonresidential building market. The largest concentration of spending is in the Texas, Louisiana, Oklahoma and Arkansas region, which accounts for approximately $2 billion of school building dollars, or nearly 17 percent of total national spending.

While college and university spending has represented a stabilizing force for contractors in recent years, this is likely to change going forward. The nation’s student debt situation has become alarming. College and university presidents, whether in public or private settings, are under pressure to hold the line on tuition. Enrollment is no longer expanding briskly as more young people choose to participate in the labor market or to exit higher education because the work is too challenging or too uninteresting, or because of more immediate job opportunities. All of this translates into suppressed capital spending.

By contrast, K-12 construction spending is likely to rise along with the number of baby boomers’ grandchildren. This factor already seems to be having an effect, though spending will continue to be constrained by fiscal realities, including the growing need for state and local governments to support expanding Medicaid and pension expenditures. Unfunded infrastructure also  represents a source of competition for dollars that might otherwise be used to fund school construction. 


Anirban Basu is chief economist of Associated Builders and Contractors. For more information, visit www.abc.org.