Government moves will steer construction, real estate business in 2013

Players in Alaska’s construction and real estate industries have positive outlooks for 2013 despite some funding and regulatory uncertainty.

Associated General Contractors of Alaska Executive Director John MacKinnon said a “substantial decline” in Department of Defense spending in 2013 will affect building construction, but that it could be offset depending on the final State capital budget.

The U.S. Army Corps of Engineer’s Alaska District military construction budget was cut from $269 million in fiscal year 2012, to $48 million in 2013.

Larry McCallister, the Corps program and project management division chief in Alaska, said the cuts are a return to spending levels of 10 years ago, before the wars in Afghanistan and Iraq increased military activity. He said the president’s overall priority to reduce overall Defense spending also played a part.

Fiscal 2014 military construction spending is projected to be $121 million for nine projects in Alaska, but is subject to change, according to McCallister.

Funding for other Corps projects is expected to remain steady over the period, based on Army Corps figures.

MacKinnon said the civil construction outlook is positive with a competitive market. The Associated General Contractors of Alaska will release its detailed 2013 construction forecast in February.

Gov. Sean Parnell’s announcement of his proposed 2014 fiscal year budget, which begins July 1, gave some insight into what and where State money will be allocated.

In his capital spending proposal, Parnell allocates $550 million for the Surface Transportation Program as a part of more than a billion capital dollars budgeted for Department of Transportation and Public Utilities. That is nearly a $100 million increase over last year.

The increase comes from more federal funding; State appropriated dollars held about even.

Not included in the governor’s budget is the $453 million bond package passed by voters in November for surface transportation and harbor construction.

MacKinnon said more money might be needed for some projects due bond dollars.

“The last couple of bond packages we’ve had — there were a number of projects in them that weren’t fully-funded. There’s no surprise to that,” he said. “The fact that they weren’t fully-funded is a commitment on (the legislature’s) part to fund them through the capital budget as needed.”

Many of the projects awarded bond money are long-term endeavors and might not be able to spend all the money right away if they were funded in a lump sum.

MacKinnon, who served as deputy commissioner of the state transportation department, said bonds do not necessarily need to be sold before money promised to projects can be divvied up.

“The fact that the voters approved it — the agencies can start spending that money on design and some other efforts before that money is available,” MacKinnon said.

He likened it to how capital funds are dispersed to prior to formal budget authorization. According to MacKinnon, money is often spent by government agencies on time sensitive projects before a budget is signed into law if the governor indicates the funds will not be cut from the signed budget.

It is a way to make sure progress is made during the summer work-season, he said.

A continuing priority for the Associated General Contractors of Alaska is establishment of a State transportation fund, something common in other states, MacKinnon said.

“It’s been a priority for several years. It’s not one of those things that’s going to happen overnight,” he said.

Rep. Peggy Wilson from House District 2 chairs the House Transportation Committee and has sponsored a bill to form the fund for the past several years. MacKinnon said he expects to see the bill brought up in the next legislative session.

After an initial appropriation to jump-start the fund, it would be maintained through reallocated vehicle fees, he said.

“The goal of (a State transportation fund) is to get consistent, reliable funding so you can fund the improvements we need on a programmatic basis instead of appropriating a lump sum to a project,” MacKinnon said.

Real estate

Few available homes in the Anchorage market and full enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act will drive Alaska’s real estate market in 2013.

Dodd-Frank includes language about “Qualified Residential Mortgages,” or QRM. The worry is that a requirement for a minimum down payment will be established as a part of QRM.

“If QRM gets enacted, it will not bode well for the housing market. It’s very onerous,” Alaska Association of Realtors President-elect Michael Droege said.

Whether a down payment minimum is enacted will depend on upcoming decisions from industry regulators.

Additionally, homebuyers will be required to provide more detailed proof of income than in the past and lenders will have to be more up front about variable interest rates and fees. Banks also will no longer be able to charge certain prepayment penalties.

The legislation, passed in 2010, was designed in part to prevent another housing market collapse by preventing prospective homeowners from taking on mortgages they couldn’t afford.

Single-family home sales were up 12 percent in November and the prices of those sales were up 5 percent, Droege said. While they may not continue at that rate, he said he expects those trends to continue.

New home construction in the Anchorage area is also strong because of a lack of available inventory, Droege said.

“It’s a really tight market and supply and demand is driving that upward mobility,” he said.

The rise in home prices has allowed some people, who under previous market conditions couldn’t justify selling, to get more favorable offers.

Droege said he expects a tight credit market to continue in 2013, and much will depend on how Dodd-Frank is implemented.

Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.