Slowly rebuilding

Hawaii’s construction sector is poised to emerge from an extended slump in 2012 with the number of industry jobs on track to grow for the first time in five years.

Even with the expected improvement, however, economists are calling for only modest gains with a relatively weak home resale market continuing to weigh on construction.

Hawaii construction jobs, which peaked at 39,100 in 2007 at the end of the last economic boom, fell to 28,500 last year, a drop of 30 percent. By comparison, the broader job market in Hawaii contracted by 6 percent from the peak in 2007 to the trough in 2010. Overall payroll jobs in Hawaii grew by 1 percent in 2011.

While construction hiring remained relatively flat during the first five months of this year, it is expected to pick up in the second half of 2012, according to several forecasts.

"The U.S. construction industry began to rebound in 2011, but Hawaii is just starting to see a recovery," said Eugene Tian, acting state economist. "We expect to see positive numbers for the second half of the year."

The health of the construction industry has more of an impact on the overall economy in Hawaii than it does on the mainland. The outside loans that fund a significant share of local construction inject new money into the state and have a widespread impact on all business activity.

The construction sector accounted for 6.8 percent of Hawaii’s economic output in 2007, compared with 4.7 percent nationally. By 2011 that percentage had fallen to 5.6 percent in Hawaii, but it was still well ahead of the national average of 3.5 percent.

The latest forecast from the University of Hawaii Economic Research Organization cautiously projected an increase in Hawaii construction activity this year after expectations of a recovery in 2011 failed to materialize.

"Construction has yet to turn the corner in Hawaii, but a pickup is now more clearly in sight. Single-family home construction languishes, but new high-rise condos, retail and resort-related development will boost nonresidential building," according to the UH forecast. "And legal challenges aside, rail construction is poised to begin in earnest as this year progresses."

UHERO economists forecast construction jobs will grow by 2.1 percent this year to 29,100 before climbing by another 8.8 percent in 2013.

The slow recovery is partly because the construction sector is having to dig out of a deep hole. The inflation-adjusted value of building permits statewide fell by more than 13 percent in 2011 to its lowest level on record, according to the UHERO report.

Local economist Paul Brewbaker cited a glut of housing stock built up in the decade before the last recession as contributing to the sluggish housing market, particularly on the neighbor islands.

"The extent of building on the neighbor islands was disproportionally higher than on Oahu," Brewbaker wrote in a recent commentary. "And across many dimensions neighbor island economic outcomes during the Great Recession paralleled those of the U.S. averages, while Oahu emerged as — literally — an island of comparative economic resilience."

Modest increases in residential permitting are forecast this year, laying a foundation for the next cyclical upswing, according to the UHERO report. Still, in 2014 permitting activity will be half of what it was in 2005, the report said.

Several condominium projects either under construction or in the pipeline in Hono­lulu will help underpin the residential construction market.

The sold-out Holomua condominium tower with 176 units on Kalakaua Avenue near Beretania Street has a target completion date of 2013. Next in the queue is a long-awaited low-rise condominium called the Cove Waikiki on Kaioo Drive, off Hobron Lane. The project will have 117 one- and two-bedroom units in three five-story buildings. Groundbreaking is expected this summer.

Alexander & Baldwin has two condominium towers slated for the Kakaako area. Construction on the 43-story Wai­ho­nua at Kewalo tower is scheduled to start late this year and finish two years later. The project is expected to be followed by a high-rise on the site of the former Comp­USA store, but the timing will be affected by market demand and other factors, according to the UHERO report.

Two large-scale housing projects on Oahu recently approved by the state Land Use Commission — Ho‘o­pili and Koa Ridge — will eventually have an impact on the island’s construction industry, but groundbreaking isn’t expected for at least another year.