Construction Startups Take Center Stage

Mar 22, 2012

The construction industry is showing signs of life, and a recent rise in home remodeling and construction is driving entrepreneurs to start new construction companies. Growing trends in the housing market are giving entrepreneurs – many of them construction workers who lost jobs during the housing market crash – an opportunity to launch startups.

The Wall Street Journal reports nearly a quarter of all U.S. entrepreneurial activity in 2011 was the result of new entrepreneurs entering the construction business; this at a time when overall business creation fell by 6%, according results from the Ewing Marion Kauffman Foundation, a nonprofit organization studying entrepreneurship.

"The Great Recession has pushed many individuals into business ownership due to high unemployment rates," said Robert Litan, vice president of research and policy at the Kauffman Foundation. 

The Kauffman data shows  that the construction industry had the highest rate of entrepreneurial activity of all major industry groups in 2011 and reached 1.7%, up from 1.2% in 2007 when the housing market collapsed.

However, the rise in construction spending can be attributed to additions and alterations, rather than the development of new homes. According to the National Association of Home Builders, spending on additions and alterations to single-family homes reached $116 billion last year, $4 billion higher than in 2009. While remodeling has historically made up only a quarter of construction spending, it has now surpassed spending on new construction overall. Data from the Census Bureau and the Department of Housing and Urban Development shows multi-unit housing construction also rose in 2011, and single-unit housing construction is expected to increase.

These growth trends are not just a boon for entrepreneurs; the rise of new businesses is helping improve the U.S. job market as well. Employment in construction (on a seasonally adjusted basis) hit 5.5 million in December, up from 5.4 million a year earlier. While these numbers are encouraging, the construction industry is still some ways from pre-recession levels – construction employment in 2006 was more than seven million.

While entrepreneurs are making headway in the construction industry, the Kauffman Foundation findings show entrepreneurial activity in all industries is 5% higher than before the recession, a modest number when compared to results from a January study by the Global Entrepreneurship Monitor. The Monitor found a 60% jump from 2010 to 2011 in the number of Americans starting or running a new business. That study, however, included not only new businesses but also those that had been in operation for up to 3.5 years.

Read the full story to find out more about growth trends in the construction industry.

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