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New Construction Starts to Rise 2 Percent in 2012

McGraw-Hill Construction part of The McGraw-Hill Companies, released its 2012 Dodge Construction Outlook Midyear Update projections, which revise the forecasts provided last October at the firm’s annual Outlook Conference in Washington, D.C. The Outlook Midyear Update predicts that total construction starts for the U.S. will increase 2 percent this year to $445 billion, up from the $434 billion reported for 2011. While slightly better than the flat performance for 2012 construction starts predicted last fall, the updated forecast still portrays an industry struggling to gain upward momentum.

“The construction industry has yet to move from a hesitant up-and-down pattern to more sustained expansion,” stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. “After plunging 23 percent in 2009, new construction starts edged up only 1 percent in 2010 and were unchanged in 2011, so the modest 2 percent increase predicted for 2012 is really more of the same. The backdrop for the construction industry remains the fragile U.S. economy, which continues to see slow employment growth, diminished funding from federal and state governments, and the uncertainty related to the U.S. fiscal stalemate and the European debt crisis. On the plus side, energy costs are now receding, interest rates are very low, and lending standards are beginning to ease for commercial real estate development.” Given these divergent factors, the construction market this year continues to see a mix of pluses and minuses by major sector, as follows:

  • Single family housing in 2012 will advance 21 percent in dollars, corresponding to a 19 percent increase in the number of units to 490,000 (McGraw-Hill Construction Dodge basis). While still at a very low amount, single family housing for the past year has been able to register small yet steady gains.
  • Multifamily housing in 2012 will climb 19 percent in dollars and 18 percent in units, given rising occupancies and rents, which reflect elevated demand from potential homebuyers still reluctant or unable to move ahead with purchasing a single family home.
  • Commercial building in 2012 will grow 10 percent, following the 12 percent gain in 2011. Warehouses and hotels will see the largest percentage increases, joined this year by a moderate gain for stores while office construction sees more privately financed projects but less government office buildings.
  • The institutional building market in 2012 will fall an additional 10 percent, after sliding 11 percent in 2011. The tough fiscal environment for states and localities continues to dampen school construction, and the uncertain economic environment is restraining healthcare facilities.
  • The manufacturing building category in 2012 will retreat 20 percent, following the 75 percent jump in 2011, which featured the start of several unusually large projects.
  • Public works construction in 2012 will slide a further 6 percent, after last year’s 14 percent decline. This reflects government spending cuts and the absence of a multiyear federal transportation bill.
  • Electric utility construction in 2012 will essentially hold steady with its exceptionally strong 2011 amount, helped by this year’s start of two large nuclear power projects.