US construction outlook is about to change for CRH and others

The outlook for US construction of affordable housing is set to change dramatically over the next two years. "Developers see a massive shortage ahead, which threatens to undo the recent progress in closing the daunting affordable housing gap in many US cities," reports Bloomberg.

While interest rates have been increasing, the number of housing projects starting this year has been cut significantly. 2022 projects will typically come online after 18-24 months, therefore construction companies are expecting a severe supply shortage by mid-2025.

This slowdown is supported by statistics from the US Department of Housing and Urban Development (HUD) which received 506 applications as of May, eight months into fiscal year 2023, totalling US$12bn in Federal Housing Administration loans to construct multi-family developments. This is about half the volume of the same eight-month period in FY22 (940 applications for US$22bn) and less than one-third of the volume for the same stretch in FY21 (1739 applications for US$37bn). 

The higher costs associated with inflation and rising interest rates are creating financial gaps making it hard for developers to complete below-market rental projects, resulting in significant delays, says Bloomberg.

Single-family construction starts slipped after a four-month run, down seven per cent in June, while applications for permits rose 2.2 per cent from May, according to the Census Bureau and HUD.

CRH's current position
While CRH reported strong sales in the US region for the 1H23, the US construction sector’s changing dynamics are becoming more visible. The lure of the US construction market is drawing attention from building material companies looking to expand and win new market share with the Infrastructure Bill and the Inflation Reduction Act set to drive growth in the US for the next few years. Robust infrastructure demand is expected for the remainder of the year. Although residential construction activity is likely to remain subdued, the underlying fundamentals are attractive for long-term growth, says CRH. 

CRH reported its interim results for the six months ended 30 June 2023, posting an eight per cent increase in sales to US$16.1bn. The Irish cement multinational is moving its primary listing from London to the New York Stock Exchange in September. It believes the change will offer more commercial, operational and acquisition opportunities, while North America already represents 75 per cent of the group’s EBITDA. 

CRH's Americas Materials Solution division saw sales of nine per cent above those of 1H22 in the 1H23, while EBITDA was 13 per cent ahead. The company’s US cement business delivered a 17 per cent increase in prices during the period, even if volumes were five per cent below the year-ago period. Ready-mix concrete prices also rose by 14 per cent, while volumes were just three per cent below 1H22 levels, impacted by softer new-build residential demand in the south and unfavourable weather in the west. Demand in the Great Lakes and Northeast were much improved. Aggregate prices rose by 15 per cent during the period, while volumes slipped by two per cent, again due to adverse weather conditions in Texas and the west.

Meanwhile the Americas Building Solutions business reported sales up 21 per cent in the 1H23, reflecting strong contributions from prior acquisitions and improved performance offsetting the impact of unfavourable weather. 

Albert Manifold, CEO of CRH said: “We are pleased to see such strong shareholder support for the listing transition as it marks an important milestone in our development and will enable CRH to fully participate in the significant growth opportunities that lie ahead.” 

Construction spending attracts
There is another reason why CRH is keen to pursue an expanding market coverage in the US. While the US housing market does not show overly strong mid-term prospects, private and public construction spending is where CRH and other infrastructure building material companies are finding encouragement. During the 1H23 construction spending totalled US$917.4bn, rising three per cent compared to the 1H22, reports Lesprom. Residential construction spending increased to a seasonal adjusted annual rate of US$856.3bn in June 2023, a 0.9 per cent rise form the May estimate of US$848.6bn, says Lesprom. Nonresidential was virtually unchanged in June from May at US$660.8bn.

Public construction spending saw a modest increase in June 2023 to US$421.4bn, up 0.3 per cent compared to the May estimate of US$420.2bn. Highway construction spending slipped marginally to US$128.6bn, while education construction fell with a seasonally adjusted rate of US$88.9bn.