What’s behind the boom in construction business applications?

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What is behind the boom in business applications in construction?

Two construction workers with blueprints on a construction site

Applications to start construction companies have more than doubled over the past decade, reaching nearly 490,000 in 2021. It was a record year for new businesses in general, with around 5.4 million applications nationwide. Among the sectors, the construction industry recorded the fourth largest number of applicants. Interest in starting construction companies broke records, with the volume of applications peaking since data transmission began in mid-2004.

Within the industry, construction companies were the most productive and started working on residential and commercial real estate in the largest number. In the residential area, the housing supply is low; An analysis by the National Association of Realtors found that there is a 5.2 million housing shortage in the US, creating a lot of work for existing contractors and new ones coming online. According to census data, housing starts increased by 12.2% in July-August. Meanwhile, Zonda predicts that the country’s 16.2 million professional-level remodeling projects in 2021 will grow to 17.9 million by the end of 2022.

The Census Bureau measures business applications using IRS employer identification numbers, which are generally required to incorporate a business. Stacker analyzed data from the bureau’s business creation statistics to uncover trends and examined possible causes for this unprecedented growth.

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The construction business, considered essential, exploded during COVID-19

A stacked bar chart showing the number of business applications in the construction industry through August and the rest of each year.

COVID-19 drew attention to the construction industry as a sector ripe for entrepreneurship, Associated General Contractors vice president Brian Turmail told Stacker.

“Construction was one of the relatively few industries that was considered essential in much of the country,” Turmil said. “There were many people in other fields of work who saw construction as a far more stable career opportunity or a far more stable business path than other sectors that could face future government shutdowns.”

Construction companies grew 20% last year – faster than any other year on record. Applications through August are slightly behind 2021 but still higher than in the years prior to 2021.

Still, according to census data, national construction spending increased by about 8.5% from August 2021 to 2022, mainly due to growth in residential construction. And the outlook for business owners remains positive; A September survey of AGC members shows that about half of those surveyed expect sales to increase over the next six months.


New companies are less likely to become employers

A line chart showing two lines: one with applications that have a high propensity to become companies with payroll, and one with the percentage of business applications that contain planned wages.

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The proportion of company applications that, according to BFS data, are likely to become employers has decreased. This is not to say that the number of companies likely to become employers has decreased; it is also increasing, only at a slower rate than total applications.

Probable future employers — or “high-inclination business applications,” as the census considers them — are determined based on several parts of their EIN application. The assessment includes whether they are hiring, whether they have a start date for paying wages and whether they have a NAICS code in certain sectors and sub-sectors. Around 13% of the applications have so far planned a first salary date in 2022, which has also been steadily decreasing since 2012.

Bureau of Labor Statistics employment data shows that about 7.4 million people were employed in America’s construction industry in 2021, and projects that employment in the sector will grow a little less than 3% through 2031.

Construction startups are mostly one-person operations, Turmail said, so it stands to reason that many don’t have hiring or payroll plans. Bigger startups are also emerging, he said, particularly when specialized teams split from a larger firm or are backed by venture capital and operate more like a tech startup.

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“The industry offers tremendous opportunities,” said Turmail. “With so much work being subcontracted, it’s one of the few industries that doesn’t have a small group of dominant players – it’s a large, dynamic and very competitive sector of the economy.”


The applications are mainly in building construction and in the specialist trade

A bar chart showing which construction subsectors have the most new business applications.

Most companies arise in particular in the construction of buildings. Building construction more often involves a large number of subcontractors doing work on behalf of a general contractor, Turmil said. With things like road construction, more work is often done by the general contractor, so small, enterprising companies have fewer gaps to fill.

Technology and innovation companies continue to enter the construction scene, Turmail said, with the aim of making the industry more modern, productive and efficient. This ranges from construction software and robotics to personnel management.

“Ultimately, it’s not like we’ve radically changed the way a building is constructed,” he said. “What separates one company from another is its ability to do the same type of work as efficiently and cost-effectively as possible. Those companies that are able to innovate—not only in terms of their use of technology, but also in finding more efficient ways to perform specific construction-related tasks—tend to do better.”


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