Construction Conversations: Buffet Says the Economy will be Fine

By: Andrew J. Mallon

I love our culture.  Most people pay $100-$200 a month for cable to watch news shows where the actual news to spin/screaming ratio is completely out of balance.  We all complain but keep tuning in.  At the same time we all have FREE access to what (in my opinion) is the most quality news program in generations- namely Charlie Rose on PBS.

Take Monday night for example. . .  Charlie interviewed Warren Buffet, CEO of Berkshire Hathaway (aka the “Oracle of Omaha”), for an hour on the same day Buffet’s op-ed advocating for higher taxes on the “ultra-rich” was published by the New York Times.  Charlie asked probing questions about Buffet’s politics, values, successes, failures . . . everything.  Though probing, Charlie confronted Buffet with credibility, respect and in a manner that endeared Buffet to Charlie rather than make Buffet defensive.  It caused Buffet to thoughtfully open up his undisputedly high intellect and was riveting.  I invite you watch it here.

What kept me captivated was not Buffet’s opinions on taxes or his political analysis (although he has a great analogy about what you do when playing a game of chicken and your opponent throws his steering wheel out the window).  I was captivated by his sense of history and context about U.S. recessions and his firm grasp of market principles.  After watching, our current troubles finally made sense and (after 3+ years of anxiety) I finally found a sense of calm.  Everything is going to be ok . . . in 2013.

Buffet explained what we all already know.  This horrible recession was caused by a housing bubble that burst.  Different from the dot-com and other market bubbles, this one hit where it counted, our home values – the cornerstone of wealth for average Americans.  I don’t know about you, but I wasn’t speculating or investing in a business that had no plan to create revenue; and I wasn’t a developer riding a wave as long as I could; but I got hit anyway just because I owned a house.  Look, even the banking and finance industry has recovered and is thriving.  So here is where we are two years later, according to Buffet: too many houses, not enough households.  “Fear not,” says Buffet.  Buffet sees a U.S. economy really that is doing fine – as long as you do not look at housing construction and ancillary industries and markets connected to housing.  We have stopped building houses and we are producing new households every day; so the housing industry is eventually going to be ok.  The market is taking care of it and it is only a question time.  How long will it take for the number of households (demand) to catch up with the current housing inventory (supply)?  Buffet says 2013.  Whew, what a relief!

Wait . . . but this leaves the obvious question of what does that mean for the construction industry – in particular the Greater Indianapolis construction and housing industry?  MSNBC ranked the Indianapolis housing market the second “sickest” in the country (behind only Tuscon, AZ).  According to MSNBC, in Indy “[t]he average home price has dropped by $20,000, or 15.3 percent, between the second quarter of 2010 and the first quarter of this year.”  Let the hand-wringing begin (again).  Buffet’s prediction of recovery by 2013 may be ambitious for us.  This is the realization I had Tuesday morning after a brief anxiety “breather” precipitated by a late night watching Charlie Rose.  At least I didn’t pay for it.

So for those of us still scrapping it out in the Indianapolis construction market, what do we do?  Channeling my inner Warren Buffet, my advice- do what is being done; it is going to be alright.  If not housing, what do you see being built?  I see public re-development projects everywhere. (Full disclosure: I’m also a government lawyer so that is what I’m looking for).  I see the Carmel City Center (mostly because it is where my office is).  I see public-funded redevelopment projects in Indianapolis building roads and doing re-development deals like “North of South” (commercial/residential) and federally “stimulated” Neighborhood Stabilization Program projects (residential).  I also see developments in new industries, like EnerDel batteries in Hancock, County.  The underlying thread through these is public spending.  If you are “private,” find yourself a “public”- entity and “partner.” (See “P3”).  Now realize that local municipal budgets are shrinking and the referendum requirement certainly is not helping spur big new public projects.  So be flexible and open to partnering scenarios and project delivery methods like design-build that can bring projects in on time and on a perhaps reduced budget for public entities.  Sell cost efficiency.  Let’s stick together.  It is going to be okay . . . eventually.

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Daniel M. Drewry

Daniel M. Drewry

Daniel M. Drewry

About This Blog

The DSV Construction Law Blog is hosted by Daniel M. Drewry. Dan is a Partner with the law firm Drewry Simmons Vornehm, LLP and concentrates his practice in the areas of Construction Law and Litigation, and Labor & Employment Law.

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