Organizational Development the Construction Industry

Organizational Development

The construction industry and the 'supply' of new homes are investigated for this study. Low interest rates on mortgages in the U.S. have encouraged individuals to buy rather than rent. In turn, builders anticipating this demand have been involved in new constructions at a very brisk rate. The construction industry has generally had a cyclic trend. At present, the market appears to be at a high peak in this cycle. Many experts in the field are predicting that a construction bubble burst is eminent. (Clark, 2005)

Traditionally, most home prices tend to rise with rising incomes and tend to also keep pace with the Federal Reserve System's (Fed) interest rate determination. In reality, construction boom has begun to outpace demand in the U.S. The flush economy of the 90s and the increasing trend of individuals to own a second home had spurred on the construction. Despite the increased construction trends in homes, the relative price of homes has also been soaring. The price jump in some markets has been as much as $3,000 in a month and about 45.6% in the past year. (Clark, 2005) the troubling trend however, is that low interest rates, high housing prices and the over supplying of markets with homes has made the market very unstable and a possible collapse of this market could result in extensive foreclosures of homes all over the U.S.

Traditionally supply of new homes has been done to support new household formations and immigration of population within the country. (Clark, 2005) an additional 300,000 homes are also created for second or vacation homes in the U.S. As baby boomers retire, they are also increasing looking for second homes for use as both vacation homes as well as investment vehicles. Many also impacted by the stock market collapse are investing in the real estate market hoping that a similar collapse will not occur in this arena.

The median housing price in some markets far outpaces the rising salary trends and the ability of the average American to buy such a house. For example, in San Francisco, the median house price has risen to $689,000 and many homeowners are purchasing such homes using very innovative and risky lending practices. Construction companies realizing that the housing industry is over heating is currently resorting to the practice of starting construction only after a sale has been made of the new property. This trend is also very prevalent in condo development where construction is only started after 90% of the condos have been sold.

Supply, demand and prices for homes vary significantly based on the perceptions of the population. Currently, the interest in finding modern homes, which are more energy efficient, do not contain lead and asbestos as well as designed with better architectural features and modern amenities is also on the rise. Many older homes have limited capabilities of accommodating new appliances and the 'home office'. In addition, modern technology has also introduced more features and personal gadgets such as personal gyms and spas that can be afforded more easily. In the U.S., a home also reflects the personal status and the position that the individual occupies in society. The demand for homes that reflect a growing position of status and power is on the rise. Smarter investment options and the ability to gain research and insight into money management is not longer the privilege of only the upper class.

Where Europe and other older societies has class distinction to define position in society, the U.S. uses "square footage" of their homes as their status symbol. It is established that most homeowners in the U.S. move on to a larger home in about 7-10 years. Homeownership is also linked to the employment rates in the region and the type of industries and income sources that can be obtained. For example, New York and San Francisco always experience a high demand for housing due to their proximity to industry and jobs. It is observed that even section of New York City like the Bronx, have been experiencing a rising trend of housing demand.

The dwindling supply of available land has made location an important factor that drives the supply, demand and prices for housing. "Regulatory and natural constraints on land use are driving up land costs, restricting development of affordable housing." (Chappell-Theunissen, 2004)as the Fed's interest rates continue to climb, the demand for housing might slow down. In the past, housing market crashes generally fooled increased interest rates. However, in spite of the downturn in the U.S. economy in 2000, and the relatively slow upswing, the controlled interest rates have helped the housing market grow. If there is an excess supply for the housing industry when compared to the demand the prices in many of the overheated section of the country will drop significantly. Economists and market trend predictors have been stating that this could happen for the past 2 years. It is still unclear if the bubble will really burst.