AIA Economist: Desperate Architects Find Themselves in Heated Bidding Wars

Kermit Baker is the chief economist for the American Institute of Architects (AIA) in Washington, D.C. In this capacity, he analyzes business and construction trends in the US economy and examines their impact on AIA members and the architectural profession. For this edition of In This Corner, Baker sits down to talk about that impact on new design trends and the intense battles over new projects. How has the typical American family home changed from a design perspective in the last few years? I think the biggest change has been size and amenities. Part of that was overblown by the boom we had in the housing market up to 2005. Very dramatic increase in size and the accessories that households were including in their homes. I think having to do with the financial environment. Credit was cheap. House prices were appreciating pretty rapidly. It made sense to over invest in your home in that period. We’ve certainly seen the pendulum swing in the other direction, probably even further back than where it started at over the last five years. Homes have gotten smaller. There is much more emphasis on not over investing or over improving. There’s a greater concern over affordability. What can I sell this for when I want to sell it and not trying to over extend the household in this economic environment. Those are not really design issues, but those are the underpinnings for how the design is playing out. When homes were getting bigger, more square footage and more rooms were added. In our survey, we spend a fair amount of time trying to figure out what special function rooms are being put in. Wine cellars, entertainment rooms, media centers, hobby rooms and things like that. Now, we’re seeing less of that and more of the general purpose space, more open space in design, more flexible space. I think households have less of it, and they want as much flexibility as they can. Looking at your bio, you have a master’s degree in urban planning from Harvard University. What are you seeing from cities like Detroit that are trying to restructure their residential and urban layouts? There’s a lot of different examples of that. Detroit is an extreme example of home prices plummeting in a central area. The planning efforts are trying to develop some economic stabilization there, something to build off of, something to generate some growth. But it’s very different from other areas that have seen rapid drops. Las Vegas and Phoenix have seen problems but qualitatively very differently from what’s happening in Detroit because of the level of growth they’ve been seeing. How painful was the housing crisis for architects and what business strategies have you seen used in attempts to survive moving forward? They’ve not been faring well. They’ve taken a huge hit, according to the Department of Labor information we get. Payrolls at architecture firms are down 25% since their peak in the middle of 2008. Just a very dramatic downturn in payroll losses about four or five times of what we’re seeing in terms of national trends. Construction is a very cyclical industry. I like to say architects have to place to hide. There are really very few options. More firms are looking internationally, but during the steepest part of this downturn, there wasn’t anything going on really anywhere across the world. And secondly, it’s very difficult for firms to turn on a dime, to have a very local base and say, “Now I’m going to do work in China or India or something like that.” You don’t start doing that tomorrow. That’s a several year plan to start developing those international connections. Firms try to diversify, internationally, across the country in different types of facilities. A typical architecture firm is fairly small, 10, 15, 20 people do work often in one or two types of facilities. They do schools, healthcare, offices. They try to diversify as much as they can both geographically and by facilities. With fewer projects, then, are bidding wars growing more intense? Again, there aren’t many options, and what that generated was stories we kept hearing about just amazing competition for whatever projects materialized. I heard from many firms who would go to a bidders conference on a project four or five years ago, and they’d see four to five competitors. Last year and earlier this year, they’re now seeing 30 or 40 of them. Everyone was desperate to get whatever they could from stimulus-funded projects, but there turned out to be not a lot of those on the building side. The ones that were there, at least early on, were fairly large government work. When it filtered down to the state and local government, there were more opportunities there because there was smaller projects. A lot of them were renovation, energy retrofits. But, again, it’s hard to turn on a dime for midsized firms to go from doing schools or commercial space to suddenly bid on a government project where they’re very much into credentialing and things like that. These firms had been faring very poorly, and there were not any strategies that really have helped them. They’ve downsized and downsized fairly dramatically, trying to do what they can to keep a little work in house and wait for the market to improve. Write to Jon Prior.