Report: New construction starts to hold steady in 2019

By |  October 26, 2018
Robert A. Murray


Dodge Data & Analytics released its 2019 Dodge Construction Outlook, predicting total U.S. construction starts for 2019 will be $808 billion. This mark is about even with the $807 billion estimated for 2018.

“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,” says Robert 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,” Murray adds, “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.”

According to Murray, an important question entering 2019 is whether deceleration is followed by a period of high level stability or a period of decline.

“For 2019, it’s expected that growth for the U.S. economy won’t be quite as strong as what’s taking place in 2018, as the benefits of tax cuts begin to wane,” Murray says. “Short-term interest rates will rise as the Federal Reserve continues to move monetary policy toward a more neutral stance. Long-term interest rates will also rise, reflecting higher inflationary expectations by the financial markets.”

At the same time, any erosion in market fundamentals for commercial real estate will stay modest, Murray says.

“In addition, the greater funding from state and local bond measures passed in recent years will still be present, and it’s likely that federal spending for construction programs will increase once all the federal appropriations bills for fiscal 2019 are finalized,” Murray says. “In this environment, it’s forecast that growth for construction starts will decelerate further, but not yet make the transition to the point where the overall volume of activity declines.”

For 2019, total construction starts are forecast to hold steady at $808 billion. By major sector in dollar terms, residential building will be down 2 percent; nonresidential building will match its 2018 amount; and nonbuilding construction will increase 3 percent.

The pattern of construction starts by more specific segments is as follows:

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 home ownership 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 prior to 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 building will retreat 3 percent, following 2 percent gains in 2017 and 2018, as well as the substantial percentage increases that took place earlier. While 2018 market fundamentals for offices and warehouses are healthy, 2019 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. Educational facilities  should see continued growth in 2019, supported by funding coming from a number of 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 that’s 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 of the project types. The omnibus federal appropriations bill passed in March provided greater funding for transportation projects that will carry over into 2019, and environmental-related projects are getting a lift from recently passed legislation.

Electric utilities/gas plants will drop 3 percent, continuing to retreat after the exceptional amount reported back in 2015. New generating capacity continues to come on line, dampening capacity utilization rates for power generation.

Avatar photo

About the Author:

Kevin Yanik is editor-in-chief of Pit & Quarry. He can be reached at 216-706-3724 or

Comments are closed