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New Construction Predicted to Increase in 2018

According to the Dodge Outlook Report, new construction starts are expected to rise across all sectors.

Chicago-based Dodge Data & Analytics released its 2018 Dodge Construction Outlook in November. The report, a mainstay in construction industry forecasting and business planning, predicts that total U.S. construction starts for 2018 will climb 3 percent to $765 billion.

“The U.S. construction industry has moved into a mature stage of expansion,” states Robert Murray, chief economist for Dodge Data & Analytics. “After rising 11 to 13 percent per year from 2012 through 2015, total construction starts advanced a more subdued 5 percent in 2016. An important question entering 2017 was whether the construction industry had the potential for further expansion. Several project types, including multifamily housing and hotels, have pulled back from their 2016 levels, but the current year has seen continued growth by single-family housing, office buildings, and warehouses.

“For 2018, there are several positive factors which suggest that the construction expansion has further room to proceed,” Murray adds. “The U.S. economy next year is anticipated to see moderate job growth. Long-term interest rates may see some upward movement, but not substantially. While market fundamentals for commercial real estate won’t be quite as strong as this year, funding support for construction will continue to come from state and local bond measures,” he remarks. “Overall, the year 2018 is likely to show some construction project types register gains while other project types settle back, with the end result being a 3-percent increase for total construction starts. By major sector, gains are predicted for residential building, up 4 percent; and nonresidential building, up 2 percent; while nonbuilding construction stabilizes after two years of decline.”

“Overall, the year 2018 is likely to show some construction project types register gains while other project types settle back, with the end result being a 3-percent increase for total construction starts.

Estimated Activity by Segment

Single-family housing will rise 9 percent in dollars, corresponding to a 7-percent increase in units to 850,000 (Dodge basis). Continued employment growth has eased some of the caution shown by potential homebuyers, while older Millennials in their 30s are helping to lift demand for single-family housing. A modest boost will also come from rebuilding efforts in Texas and Florida after Hurricanes Harvey and Irma.

 Multifamily housing will decline 8 percent in dollars and 11 percent in units to 425,000 (Dodge basis). This project type appears to have peaked in 2016, helped by widespread growth across major metropolitan markets. That strength has begun to wane in 2017, given slight deterioration in market fundamentals (rent growth, occupancies) and a more cautious bank lending stance.

 Commercial building will increase 2 percent, following a 3-percent gain in 2017, and continue to decelerate after the sharp 21-percent hike back in 2016. Office construction should see further growth in 2018, helped by broad development efforts in downtown markets, and warehouse construction is supported by greater demand arising from e-commerce. However, store construction will remain weak, and hotel construction will continue to pull back from its 2016 peak.





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