It's the TARP, Stupid

It's the TARP, Stupid

After a brief uptick in December, the AIA’s Architecture Billings Index slipped again in January, settling in at a new record low and continuing a larger six-month decline that began in September. Inquiries showed a marked improvement, however, possibly in concert with discussions of infrastructure spending generated by the stimulus bill, though of course that was not finalized—with somewhat unimpressive construction spending—until this week.

AIA chief economist Kermit Baker suggested as much in a press release accompanying the billings numbers on Wednesday, though he also saw a far greater problem constraining the industry: the continued freeze within the credit markets. “Now that the stimulus bill has passed and includes funding for construction projects, as well as for municipalities to raise bonds, business conditions could improve,” he said. “That said, until we can get a clearer sense of credit lines being made available by banks, it will be hard to gauge when a lot of projects that have been put on hold can get back online.”

In other words, for all the attention architects and the architectural media (AN included) have paid to the stimulus bill the president signed on Monday, the real salvation will most likely come from TARP, and its big brother, the Financial Stability and Recovery Plan.

(For the record, billings fell to 33.3 from 36.4 while inquiries rose to 43.5 from 37.7. Regionally, the Northeast shed 4.6 points to hit 29.8, the Midwest and South each lost about one to 34.6 and 34.4, respectively, and the West gain 1.5 points to 38.3. For the sectors, multi-family residential work held roughly stable, losing half-a-point to hit 29.5, commercial/industrial gained 5.7 to 33.8, while institutional fell 2.2 to 37.1, mixed use 5.5 to 39.6.)

“There are large parts of the stimulus that will go to public works that won’t be going to architects necessarily, like road and water treatment facilities and the so-called smart grid,” said Ken Simonson, chief economist at the Associated General Contractors of America. “Transportation and high-speed rail will provide some work, but for architects, the real recovery will come from the financial markets.” (A prime example of the former is the MTA’s commitment to build the Grimshaw- and James Carpenter-designed aboveground portion of the Fulton Street Transit Center.)

Simonson said that the part of the stimulus bill that will benefit architects is not the part that they think—the brick-and-mortar projects—but softer measures like tax breaks that may help restore consumer demand and lead to new projects. “The emphasis on stimulus is probably right in the sense that it will help the economy weather this downturn,” Simonson said. “But not in the sense that it will put money into the hands of architects, at least not in the way it will for construction workers.”

But this also means that other measures, like the $275 billion foreclosure package, could have an impact beyond the one architects might think. Given that most designers do not work on tract homes in suburban Phoenix, the program would seem to have little effect. But Richard Rosan, president of the Urban Land Institute, said the money is more far-reaching than that. “If you don’t get the lending back, the real estate development business is done,” he said. “If you can’t borrow, you can’t build, and if you can’t refinance, then you’re in terrible trouble with your existing buildings. Both TARP and the foreclosure plan will help fix these problems, albeit slowly.”

And financing has been a problem for some time already. The AIA, in preparing the billings index, surveys dozens of architects in the country each month. In addition to asking about their business, they pose a specific question. Back in September, it was “What is the most serious problem facing your firm?” The resounding answer, at 63 percent of firms, was client problems with project financing, followed by allied issues related to the overall financial turmoil, though that took only 19 percent.

“What we’re hearing from a lot of our people is that a lot of projects are ready to go and they just can’t go forward because they can’t get the financing,” said Jennifer Riskus, the AIA’s manager for economic research. Perhaps an architectural stimulus, separate from the all-important credit vehicles currently in the works, should be in order.

Correction: An earlier version of this story said the Obama administration’s foreclosure program cost $750 billion. AN regrets the error.