The 2019 Dodge Construction Outlook predicts that total U.S. construction starts for 2019 will be $808 billion, staying essentially even with the $807 billion estimated for 2018, according to industry data provider Dodge Data & Analytics.
“Over the past three years, the expansion for the U.S. construction industry has shown deceleration in its rate of growth, a pattern that typically takes place as an expansion matures,” said Robert A. Murray, chief economist for Dodge Data & Analytics. “After advancing 11 percent to 14 percent each year from 2012 through 2015, total construction starts climbed 7 percent in both 2016 and 2017, and a 3 percent increase is estimated for 2018.
“There are, of course, mounting headwinds affecting construction, namely rising interest rates and higher material costs, but for now these have been balanced by the stronger growth for the U.S. economy, some easing of bank lending standards, still-healthy market fundamentals for commercial real estate, and greater state financing for school construction and enhanced federal funding for public works.”
The pattern of construction starts by industry segment, as identified by Dodge Data & Analytics, are:
- Single-family housing will be unchanged in dollar terms, alongside a modest 3 percent drop in housing starts to 815,000. There will be a slight decline in homebuyer demand as the result of higher mortgage rates, diminished affordability, and reduced tax advantages for homeownership as the result of tax reform.
- Multifamily housing will slide 6 percent in dollars and 8 percent in units to 465,000. Market fundamentals such as occupancies and rent growth had shown modest erosion before 2018, which then paused this year due to the stronger U.S. economy. However, that erosion in market fundamentals is expected to resume in 2019.
- Commercial construction will retreat 3 percent, following 2 percent gains in 2017 and 2018, as well as the substantial percentage increases in earlier years. While 2018 market fundamentals for offices and warehouses are healthy, next year vacancy rates are expected to rise as the economy slows, slightly dampening construction. Hotel construction will ease back from recent strength, and store construction will experience further weakness.
- Institutional building will advance 3 percent, picking up the pace slightly from its 1 percent gain in 2018, which itself followed an 18 percent hike in 2017. Construction of educational facilities should see continued growth in 2019, supported by funding coming from numerous school construction bond measures. Health care projects will make a partial rebound after pulling back in 2018. Airport terminal and amusement-related projects are expected to stay close to the elevated levels of construction starts reported in 2017 and 2018.
- Manufacturing plant construction will rise 2 percent following the 18 percent jump estimated for 2018. The recent pickup in petrochemical plant projects should continue, and cuts in the corporate tax rate from tax reform should encourage firms to invest more in new plant capacity.
- Public works construction will increase 4 percent, reflecting growth by most project types. The omnibus federal appropriations bill passed in March provided increased funding for transportation projects that will carry over into 2019, and environment-related projects are getting a lift from recently passed legislation.
- Construction of electric utilities/gas plants will drop 3 percent, continuing to retreat from the exceptional levels reported in 2015. New generating capacity continues to come on line, dampening capacity utilization rates for power generation.