Hawai'i's deflating housing market has taken a toll on the construction industry with a roughly $1 billion reduction in private residential building permits over the past three years, but across O'ahu, hundreds of military homes are being built under privatized partnerships that are buoying local contractors at an opportune time.

"This is a big boom. This is a big help," said Jim Ramirez, a former executive with Dick Pacific Construction Co. who is now vice president of construction for Forest City Military Communities Hawaii, which is handling the construction and renovation of about 7,000 homes for the Navy and Marine Corps.

The Department of Defense about five years ago awarded three contracts for replacing or renovating roughly 17,000 Army, Navy, Air Force and Marine Corps homes on O'ahu over a decade or so. After gradually ramping up over the past few years, the work is peaking this year in a counterbalance to declining private residential construction.

Carl Bonham, executive director of the University of Hawai'i Economic Research Organization, said the military housing projects equate to near 20 percent of annual construction industry revenue statewide.

"It's a lot of money," he said, estimating the collective value of the work at $500 million to $1 billion a year. "It's significant. The thing that's important is it's not going away."

The bulk of the military housing work is scheduled to run through 2014 or 2015, which could help bridge a trough from the downturn in private residential construction where permit values fell from about $2.7 billion in 2005 to $1.8 billion last year.

Relative to the state's roughly $65 billion economy, the privatized military housing programs are relatively small, but are helping keep the local economy in the realm of little or no growth as opposed to negative growth as other big economic drivers such as tourism and real estate development weaken.

"You're losing close to $1 billion in residential permits, but at the same time (military housing projects have) basically replaced what was lost in the private residential building sector," Bonham said.

This year, Forest City Military Communities estimates it will spend $320 million building about 1,000 new homes and renovating 300 homes at Marine Corps Base Hawaii in Kane'ohe Bay, around Pearl Harbor and Manana.

Ramirez said production is forecast to decline to about 500 homes in each of the next two years as work gets closer to completion for an initial block of work covering about 4,500 new and renovated homes valued at $1.5 billion. Another block of work covering about 2,500 homes could last beyond 2014.

For the Army, contractor Actus Lend Lease LLC is peaking this year with new home construction running about 85 homes a month, said Ann Wharton, spokeswoman for Army Hawaii Family Housing LLC, the Army-Actus partnership.

"That should continue through mid-2010," she said of the pace, adding that renovation work is less predictable because renovations are typically made only as residents move out.

The 10-year Army housing project covers 7,945 homes, including 5,388 new homes and renovations to 2,557 homes at Schofield Barracks, Fort Shafter, Aliamanu Military Reservation, Wheeler Army Air Field, Helemano Military Reservation, Tripler Army Medical Center and Coast Guard housing at Red Hill.

To date, Actus has completed 1,074 new homes and 67 renovations at Schofield, 262 new homes at Aliamanu, nine renovations at Fort Shafter, 70 renovations at Helemano and 30 renovations at Wheeler.

Actus has spent $732 million to date on the Army project, and $723 million of that has flowed to local businesses, the company reported.

The Air Force project, which also was awarded to Actus, involves 2,474 homes, including 1,142 new homes and 1,332 renovations at Hickam Air Force Base. Work is about half complete.

Actus reported spending $7.7 million to date on the Air Force work, with virtually all of it going to local businesses.

The three contracts are part of a national program in which the military turned to the private sector to build and maintain housing because it realized it couldn't build or renovate housing to desired standards fast enough.

Bonham said the result has provided a big boost to construction employment, an impact he estimates at 3,000 jobs that has kept industry employment on O'ahu at about 27,000 this year, or about 500 more than last year and 1,000 more than 2006.

Ramirez of Forest City Military Communities said four years ago it was hard to get bids from contractors. "Now, we have people knocking on our doors," he said.