Construction in South Dakota cities soars despite a year of challenges

As Ninth District state economies recover from the COVID-19 pandemic, South Dakota continues to make a notable rebound, especially in the construction sector.

“Every month construction is going up,” said Nicole Weimer, executive vice president of the Black Hills Home Builders Association. “Even though prices are high on building materials and we are short on supply, permits are still coming in here.”

High-valued permits

The state’s two largest cities, Sioux Falls and Rapid City, have seen strong construction activity in the first half of 2021. Despite strains on the industry across the country, construction in both South Dakota cities is continuing to break records in 2021, shown by the increase in permits issued for high-value projects.

For example, the value of permits issued in Sioux Falls in the first two quarters of 2021 was higher than in similar periods for the past three years (Chart 1). Rapid City also saw construction permit value surpass levels not seen since 2018 (Chart 2), which was itself a bit of an anomaly thanks to a $92.5 million hospital expansion and renovation permit issued that year.

Housing demand

Recent construction activity has been driven by a variety of factors. Rapid City and Sioux Falls are experiencing very high demand for housing, which builders are rushing to meet with more multifamily buildings. Data from January to June 2021 show higher multifamily permit values than in the past several years in both cities. Total multifamily permits issued over the same period in Sioux Falls increased nearly 120 percent compared with 2019 levels (Chart 3). Single-family home construction is also strong, though activity has been somewhat more robust in Rapid City than in Sioux Falls (Charts 3 and 4).

According to sources in both cities, strong demand for housing is largely being driven by an increase of people moving to the cities from other states during the COVID-19 pandemic. A Sioux Falls source said that buyers and renters are signing for units the moment they are listed online without even touring beforehand.

Although data are not yet available for population growth in 2021, the Census Bureau estimates that Sioux Falls grew by 5,100 people in 2020, or 2.7 percent. Rapid City’s population is estimated to have grown by about 1.5 percent. Moreover, the annual United Van Lines National Movers Study found that South Dakota had the fourth-highest influx of people moving into the state of all 50 states in 2020.

Nonresidential construction

In addition to housing, construction activity has also been driven by large, high-valued commercial projects, such as a FedEx facility in Sioux Falls and a new government building in Rapid City. The continued expansion of health care facilities in both cities, especially of Monument Health in Rapid City, is another contributing factor to the growth in permit values in the first half of the year.

Not all construction is seeing strong growth; for example, office and institutional project activity in Sioux Falls decreased relative to 2020 levels. Local sources believe this is a likely side effect of changing work practices during the pandemic.

“When I’m looking at everything on the home side, everything is up, up, up. When you look at the commercial when it relates to offices, however, we’re going down there, given remote work,” said Julie Terrell, executive vice president of the Home Builders Association of the Sioux Empire.

The road ahead

Economic growth in Sioux Falls and Rapid City is also reflected in a relatively healthy labor market in both cities. Total employment in Sioux Falls is above pre-pandemic levels, which is noteworthy given that total U.S. employment is still nearly 3 percent below pre-pandemic levels as of June. Total employment has also surpassed pre-pandemic levels in Rapid City.

Given the strong recovery in both cities, local officials expressed enduring confidence in the construction sector despite pressures from the past year and a half. “This area is a fairly consistent area; we never had the bottom drop completely out since I’ve been working here,” said Curt Bechtel, the division manager for Rapid City’s Building Services Department. “There never really was a big slowdown construction-wise [in 2020] either. It was semi-normal here, people were happy about that, and the word spread.”