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The Health of the Economy is Tied to the Building Sector

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When the Building Sector contracts, it not only leads to rippling effects of rising foreclosures and stagnant housing starts, but every other U.S. sector and industry suffers [1]. Virtually every U.S. industry – from steel, concrete, insulation, caulking, mechanical and electrical equipment, solar systems, glass, wood, metals, tile, fabrics, and paint to architecture, planning, design, engineering, banking, development, real estate, manufacturing, construction, wholesale, retail and distribution – depends on the demand for products and services generated by the construction industry.

A Building Sector Crisis

As the economic recession of 2008 clearly demonstrated, a weak Building Sector can have significant impacts on the overall strength of the U.S. economy. Between 2007 and 2011, Commercial Real Estate (CRE) transactions dropped 90% and private construction spending on commercial projects fell by 40%. In the residential market, private construction spending fell by over 50% and housing starts fell by close to 60%. This plummeting demand for projects led to sky-rocketing unemployment – between 2007 and 2011 the construction industry as a whole lost over two million jobs. The Building Sector contraction not only slowed economic recovery, but also negatively affected the local and federal tax base, leading to large deficits and local and state government spending cuts.

Commercial Real Estate Meltdown

One of the most pressing economic crisis facing the country today is occurring in the Commercial Real Estate (CRE) market. High rates of unemployment have led to a decrease in demand for office, retail, manufacturing, warehouse, and hotel space. As a result, vacancy rates remain high and rents are going down, making it difficult for borrowers to pay their loans. Between now and 2014, $1.4 trillion in CRE loans will be coming due, half of which are currently underwater and many more near underwater and not able to refinance. The impact of this situation on small regional and community banks, which have high concentrations of commercial real estate loans, could be devastating, since these banks face as much as $300 billion in losses.

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The Building Sector is a major driver of the U.S. and world economies. It touches nearly every industry (from steel, insulation, and caulking to mechanical and electrical equipment, glass, wood, metals, tile, fabrics and paint) across all sectors of the U.S. economy (from architecture, planning, design, engineering, banking, and development to manufacturing, construction, wholesale, retail, and distribution).