Hawai'i's construction boom likely will be over next year, with expected declines in building activity and jobs, according to a new economic report.

The forecast by the University of Hawai'i Economic Research Organization is the first to predict an end to the current growth cycle for the construction industry that has been a primary driver of statewide economic growth.

"Hawai'i's construction cycle is at a turning point," said the report by UH economists Carl Bonham and Byron Gangnes, and Bank of Hawaii chief economist Paul Brewbaker. "With home appreciation largely over and affordability much eroded, the real volume of residential construction activity will begin to recede gradually."

The report forecasts a loss of about 400 construction jobs next year, representing a 1 percent cut from the industry's nearly 36,000 workers, followed by perhaps a slightly higher loss in 2008.

Construction activity is roughly forecast to peak this year at $6.2 billion, then fall by 2 percent to $6.1 billion next year and then fall a little more in 2008. The industry is one of the major pillars of Hawai'i's $53 billion economy.

Kyle Chock, executive director of the Pacific Resource Partnership, an alliance between contractors and the Carpenters Union Local 745, said a slight industry decline isn't going to hurt much.

"A little contraction is probably something this industry welcomes right now," he said. "We've had too much work. We feel real good about where the industry is going right now."

The researchers based their projection largely on expected contraction of residential construction brought on by weakening home sales, still-rising building costs and home prices that are now forecast to decline slightly.

If the forecast is accurate, it would sap some of the strength from the state's expanding economy, but would not nearly be enough to stop growth.

"We're pulling out some of the growth of the overall economy," said Bonham, an economics professor. "We're not talking about something that will derail the economy. Really we're talking about a pause in growth in this sector."

THE STATE'S VIEW

Pearl Imada Iboshi, the state's chief economist, said she believes the UH forecast is a bit too bearish. "I don't think things can slow that quickly," she said.

Iboshi said residential construction permits have been declining dramatically, but she expects strong continued growth in commercial construction and federal government work will keep Hawai'i's building industry expanding, albeit more slowly.

The report said that hotel, time-share, warehouse and retail construction should keep the construction industry near record levels, but that faster than previously expected weakness in residential building turned its forecast negative.

Bonham earlier this year was forecasting that O'ahu's median single-family home price would increase 5 percent next year. But now he expects a 1.5 percent decrease from about $635,500 this year to $625,700 next year.

"In our view prices have now reached their upper bound for the current investment cycle," the report said.

SCALING BACK

Earlier this year, the researchers had expected 2007 to be another year of construction industry expansion.

An April forecast from the organization predicted inflation-adjusted construction activity would grow 4 percent from $6.2 billion this year to $6.5 billion next year. Construction jobs were expected to grow by 700, or 2 percent, in the same period.

There was one upside to the revised report. The organization said construction activity this year was stronger than it had previously expected — about 20 percent stronger, with about half the increase from more activity and half from higher costs.

Reach Andrew Gomes at agomes@honoluluadvertiser.com.