Brick by brick

Demolition activity, closely tied to the health of the construction industry, has lagged behind as a source of scrap metal as the U.S. economy has slowly rebounded from the financial crisis and recession of 2008 and 2009.

Demolition contractors, even more so than the scrap recyclers who buy the metal they generate, have been awaiting a sharp upturn since the 2008 economic slowdown, but no such spike in activity has occurred.

However, national construction statistics and the viewpoint of the National Demolition Association (NDA), Doylestown, Pennsylvania, point to a slow buildup in demolition activity that is resulting in additional scrap flowing into the yards of processors.
 

The slow climb back

“Demolition activity is definitely up in 2014,” says Michael Taylor, executive director of the NDA. “Most economists believe that when we suffer a major event like the recession of 2009 and 2010 it can take almost 10 years to completely dig out,” he adds. “If we’re now five years away from the worst part of the great recession, I think that’s probably true.”

Taylor, who says he consulted with NDA board member Drew Lammers of the scrap company Cohen Bros. Inc., Middletown, Ohio, before providing comments on the scrap market, says Lammers also sees positive signs. “We’re in agreement that things are definitely getting better for the demolition industry in the U.S. and Canada,” Taylor remarks.

As the U.S. economy has limped through its recent no-growth or slow-growth years, the number of abandoned buildings has increased in part because of the building boom of 2001 to 2007, which created an overcapacity of certain types of structures and dwellings.

“The volume of work has increased [in 2014], mostly because of pent-up demand,” Taylor says. “Both nations simply didn’t demolish much for almost three years during the recession, and now there are tons of projects that are finally coming online,” he says of the U.S. and Canada. “In general you can say that things are much improved, and we are looking at a multiyear run of decent volumes of work,” he adds.

For scrap processors, the amount of demolition scrap they see flowing into their yards in 2014 can vary greatly from region to region. “Regional activity is still king,” Taylor says. “California has finally begun to dig out, as they seem to have addressed some of their short-term financial problems in Sacramento,” he continues. “The South is doing well, and we are seeing a good amount of activity in the Midwest and Northeast.”

As Taylor notes with California, one of the regional variables can involve the budgets of state governments. “Governments are beginning to spend money again as tax revenue from increased business activity has increased,” he comments. “Pennsylvania recently passed a multibillion-dollar capital program to address its massive transportation infrastructure problems.”

In the Keystone State, “the commonwealth will fund this work with a 28-cents-per-gallon—over five years—increase in gas prices,” Taylor notes.

Many school districts also have begun to improve their facilities in some regions, he says, before adding that the rebound of the private sector remains pivotal.

“The major push for demolition activity is the private sector—industrial retooling, removal of excess inventory and development of new facilities as unemployment drops,” Taylor says.

Regional variations in the health of state budgets and the investment decisions of the private sector can be seen in the construction industry employment figures calculated by the U.S. Department of Commerce and analyzed each month by the Associated General Contractors of America (AGC), Arlington, Virginia.

In May 2014, 40 states plus the District of Columbia employed more people in the construction sector than they did one year earlier in May 2013, according to a June 2014 AGC press release.

“With demand for construction growing in most states, many firms are slowly rebuilding their depleted payrolls,” says Stephen E. Sandherr, AGC chief executive officer, of the May construction employment figures.

Among the U.S. states experiencing the highest percentage of construction employment growth (and potentially demolition job growth) were Nevada, with a 12.5 percent (7,000 jobs) boost between May 2013 and May 2014; Florida, with 9.8 percent (35,300 jobs) growth; and Minnesota, with a 9.7 percent (9,700 jobs) increase.

In sheer numbers, California added the most new construction jobs in the 12-month span, with 37,700 additional jobs, followed by Florida’s 35,300 new jobs in the sector, Texas’ additional 26,500 jobs and New York’s 12,000 new jobs.

Still trying to find a construction sector rebound were West Virginia, losing the highest percentage of jobs (down 6.8 percent, or 2,200 jobs); New Jersey (declining 6.2 percent, or 8,500 jobs); and Montana (down 5.7 percent, or 1,400 jobs).
 

Unfinished business

The pent-up demand for construction and demolition activity that Taylor refers to has not yet kicked in across all building sectors, but several sectors are showing signs of life.

The federal government’s bipartisan squabbling has endured for several years now, often resulting in red lights to developers and state project managers who may otherwise serve as sources of construction and demolition activity.

The winding down of military activities in Iraq and Afghanistan, however, is spurring some demolition activity, according to the NDA’s Taylor.

Fewer soldiers on active duty and renewed efforts to consolidate military bases are already leading to armed-forces-related bidding processes for demolition contractors, Taylor says. “The U.S. Army Corps of Engineers will be making a presentation in Nashville next March at our 42nd annual convention about its next phase of removal of base housing,” he says.

The Department of Defense, Taylor says, “is committed to decreasing its real estate footprint and consolidating its operations in smaller bases.”

The space program has been another victim of government austerity. “NASA (the National Aeronautic and Space Administration), with the end of the Space Shuttle program and the privatization of our space program, is looking to shed a lot of its real estate holdings,” Taylor says.

He adds that the Department of Housing and Urban Development (HUD) “has had a program for years to get out of the public housing business by providing vouchers to low-income people, so I think you will continue to see the demolition of public housing high-rises or the rehab of these units into low-income senior citizen housing.”

Taylor continues, “Long-term, government work is always a good part of the demolition mix. It’s difficult right now as the governments—federal, state and municipal—are still looking to increase their revenue before embarking on any large capital projects.”

In addition to providing demolition bidding opportunities (and the resulting scrap metal), Sandherr of the AGC says the government also can spur activity by catching up on infrastructure spending.

“Quickly passing a long-term highway and transit bill will give many construction employers the security they need to begin adding to their payrolls,” he says. “It is hard to hire someone if you don’t know what the market conditions will be like next year, or even next month, which is exactly what many highway and transit contractors have to cope with right now.”

Sandherr says the AGC is in favor of a new surface transportation bill as way to provide “a lot of stability to what has been a very uneven construction recovery.”
 

A busier scale

Although a major uptick in construction and demolition activity may not be in the offing for 2014 or 2015, the current pattern should result in a little more demolition scrap moving across scrap yard scales.

For demolition contractors, the slow climb back has not been easy, and the second half of 2014 does not bring the promise of vigorous profitability. “Margins remain tight and there are still some nondemolition entities bidding our work,” says Taylor.

“You can still see some general contractors at job walks on larger projects, but the recent building boom has decreased that somewhat,” he says. On smaller projects, Taylor says, experienced demolition contractors have been subject to competition “from small general contractors, swimming pool installers, land clearing companies and the like.”

The money earned at the scrap yard scale house has remained a positive for demolition contractors, according to Taylor. “The market for scrap is solid, not 2006-to-2008 numbers, but [there] are still people ‘buying’ demolition jobs to gain access to the scrap.”

Scrap metal yields alone may not be enough to give a demolition project the green light, the way they did six or seven years, ago, Taylor adds. “The major factors influencing this real estate decision are probably a desire to get the structure off the tax rolls and new opportunities to develop the site,” he comments. “I do think that some [property] owners are removing structures from their portfolios because scrap prices are solid. Scrap is still important, but a growing economy and a demand for new buildings is probably the greatest factor pushing demolition.”

The slow-growing economy of 2014 has made Taylor and NDA members more optimistic than they were five years ago. “Things are better. People in our industry are busier. Competition is fierce, but I think there is a new sense of optimism about the future.”

The author is editor of Recycling Today and can be contacted via email at btaylor@gie.net.