Construction Trends During Election Years

By Taylor Miller, OBA Project Specialist

Predicting the economic behavior of any industry is typically a tall task. To forecast the economic fluctuations of the construction industry during an election year, however, is a much less daunting undertaking.  With plenty of data to analyze, certain patterns are obvious in the months approaching an election and the months after a President is voted into office. The construction industry is particularly tethered to the political climate due to several factors such as tax policy, interest rates, regulation changes, and policies surrounding immigration and labor laws. Historical trends reveal that election cycles often bring a mix of uncertainty and optimism, affecting investments, project timelines, and economic forecasts within the construction sector. Understanding these trends can help developers effectively navigate the challenges in the construction landscape and capitalize on the opportunities presented by election cycles.

In the months leading up to an election it is common to observe a slowdown in construction spending. Developers and investors tend to adopt a wait-and-see approach, postponing major investments until the election outcome is determined. This trend is driven by the desire to avoid committing resources in an uncertain political environment. For example, in 2012 total construction spending in the United States exhibited a significant dip from August to October, according to data from the U.S. Census Bureau. The same data set shows a similar trend in both the 2016 and 2020 elections. However, all 2020 data must be taken with a grain of salt due to the slowdown ushered in by the COVID-19 pandemic.

Conversely, the period following an election often witnesses a surge in construction activity. Once the political landscape becomes clearer, pent-up demand and deferred projects are typically released, leading to an increase in construction spending. This increase in construction spending is particularly noticeable when the election results are perceived as favorable for business and economic growth. For example, in December 2016 total construction spending in the United States reached $1.181 trillion, a significant rise from previous months and years. This increase was driven by heightened confidence in the economic policies anticipated from the incoming Trump administration, which included promises of deregulation and infrastructure investment, according to the Federal Reserve Economic Data. Similarly, following the 2008 election, the Obama administration implemented the American Recovery and Reinvestment Act (ARRA) which provided a significant boost to the construction sector through increased infrastructure spending and economic stimulus.

The data shows an uptick in construction projects can almost always be expected during the post-election period, however the type of projects that will see the most spending is highly dependent on the candidate’s campaign promises. Policy-driven fluctuations are evident in various election cycles. The Obama administration’s focus on infrastructure development led to significant federal investments in construction projects. The Trump administration’s emphasis on deregulation and tax reforms created a favorable environment for private sector construction. In contrast, shifts towards fiscal conservatism can lead to tightened budgets for public construction projects, impacting the overall spending in the sector.

We have intentionally referenced the data from the 2012 and 2016 election cycles which tells a story that, under relatively ordinary social and economic conditions, construction spending can be predicted to a degree. The data from the 2008 and 2020 election cycles tell a different story, however. Developers and industry stakeholders can make decisions based on historical trends, but every investment is a roll of the dice. You never know when a global pandemic or an international economic crisis will unfold. The data from these election cycles vary from the others due to the 2008 housing crisis and the COVID-19 pandemic. Construction spending saw a significant downturn in the spring and summer of 2020 after the pandemic started. By the first few months of 2021, contractors began replenishing their backlog of projects that had previously been postponed. The construction sector never truly recovered until well into 2022. The data from this election cycle, as mentioned previously, must be taken with a grain of salt.

Construction spending before the 2008 election cycle was already on a downturn from the Great Recession. The housing bubble began to burst in 2007 which led to a steep decline in housing prices and a subsequent slowdown in residential construction. After the election, the credit crunch severely restricted access to financing for both residential and commercial construction projects. As banks tightened their lending standards, many ongoing and planned projects were delayed or canceled. These individual events serve as a reminder for developers that even with some of the most reliable data, external societal and economic factors must be considered in an investment strategy.

Election years bring a complex interplay of uncertainty and opportunity for the construction industry. Historical trends indicate that while pre-election periods may experience a slowdown in construction activity due to political uncertainty, post-election periods often witness a surge as clarity returns to the market. The construction economic outlook during election years is shaped by various factors, including policy proposals, regulatory changes, fiscal policies, and overall economic confidence. Interpreting this data and basing investment decisions on these trends is a worthwhile strategy, but developers must proceed with caution as external social and economic events like a pandemic or financial crisis may offset anticipated construction spending.

This article was published in the September / October 2024 edition of the Think Realty Magazine and can be viewed online at Think Realty.