New Construction Starts to Rise 6 Percent in 2013

August 14, 2013

New construction starts are forecast to increase 6 percent in 2013, to $506 billion, according to the Midyear Update to the 2013 Construction Outlook from McGraw Hill Construction.

This is the same rate of increase for total construction starts that was predicted in October 2012 and follows the 8 percent gain that took place in that year.

“The recovery for construction continues to unfold in a selective manner, proceeding against the backdrop of the sluggish U.S. economy,” said Robert A. 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 the report, single-family housing will rise 28 percent in dollars, corresponding to a 24 percent increase in the number of dwelling units to 640,000. The low inventory of new homes for sale should spur more construction as home prices rise. The recent increase in mortgage rates has raised concern, but rates remain near historic lows and have not significantly affected affordability for most potential homebuyers.

Multifamily housing will climb 23 percent in dollars and 20 percent in units, assisted by 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 in 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. The pace of retail construction is picking up, joining earlier gains registered by warehouses and hotels. The increase for office construction will remain relatively low in 2013, as more privately financed office projects are countered by fewer government office buildings.

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, as firms hold back on plant investment given the sluggish U.S. economy and slow export markets.

Public works construction in 2013 will rise 3 percent, helped by growth for highways and bridges. The transportation sector was largely exempt from the federal spending cutbacks under the sequester, and the current year is seeing a number of large bridge projects reach the construction start stage.

Electric utilities in 2013 will see a 40 percent drop in the value of new construction starts, following the record high that was achieved in 2012 which included the start of two large nuclear facilities. With new generating facilities coming on line and capacity utilization rates dropping, the near term is seeing downward pressure on new power plant construction.