Housing still leading upturn in construction starts

New construction starts are forecasted to rise 6 percent this year to $506 billion, according to McGraw-Hill Construction. This is the same increase rate for total construction starts that was predicted last October, and this follows the 8 percent gain that took place in 2012.

“The recovery for construction continues to unfold in a selective manner, proceeding against the backdrop of the sluggish U.S. economy,” says Robert Murray, vice president of economic affairs for McGraw-Hill Construction. “While the degree of uncertainty affecting the economy seems to have eased a bit from last year, tight government financing continues to exert a dampening effect on both the economy and the construction industry.

“On the positive side for construction, the demand for housing remains strong; market fundamentals for commercial building are strengthening; and lending standards for commercial real estate loans continue to ease gradually. On balance, the recovery for construction is making progress, but at a single-digit pace given the mix of pluses and minuses by major sector.”

According to McGraw-Hill Construction, single-family housing will advance 28 percent in dollars, corresponding to a 24 percent increase in the number of dwelling units to 640,000. The inventory of new homes for sale is currently very low, which should spur more construction, and home prices are heading upward.

Multifamily housing will climb 23 percent in dollars and 20 percent in units, helped by the gains reported for occupancies and rents over the past year. Major metropolitan areas such as New York continue to see groundbreaking for large apartment projects, along with the re-emergence of large condominium projects.

Commercial building will grow 15 percent after the 11 percent increase reported for 2012, although this year’s level of activity in dollar terms will still be 39 percent less than what was reported during the 2007 peak year, McGraw-Hill says. The pace of store construction is picking up, joining earlier gains registered by warehouses and hotels. The increase for office construction will remain relatively subdued in 2013, as more privately financed office projects are countered by fewer government office buildings.

On a negative note, the institutional building market will slide an additional 5 percent after falling 10 percent in 2012. While state fiscal health has shown some improvement, state and local budgets remain tight, further dampening school construction. Uncertainty related to hospital mergers and the implementation of the Affordable Care Act is restraining construction of healthcare facilities.

The manufacturing building category will drop 8 percent, McGraw-Hill adds, as firms hold back on plant investment given the sluggish U.S. economy and slow export markets.

Public works construction, meanwhile, will rise 3 percent. Electric utilities will see a 40 percent plunge in the value of new construction starts, following the record high that was achieved in 2012.