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New Construction Starts in 2016 to Grow 6 Percent

Dodge Data & Analytics released its 2016 Dodge Construction Outlook, a mainstay in construction industry forecasting and business planning. The report predicts that total U.S. construction starts for 2016 will rise 6 percent to $712 billion, following gains of 9 percent in 2014 and an estimated 13 percent in 2015.

“The expansion for the construction industry has been underway for several years now, with varying contributions from each of the major sectors,” stated Robert Murray, chief economist for Dodge Data & Analytics. “Total construction activity, as measured by the construction starts data, is on track this year to record the strongest annual gain so far in the current expansion, advancing 13 percent. Much of this year’s lift has come from nonbuilding construction, reflecting the start of several massive liquefied natural gas terminals in the Gulf Coast region, as well as renewed growth for new power plant starts. Residential building, up 18 percent this year, has witnessed continued strength for multifamily housing while single family housing seems to have re-established an upward trend after its 2014 plateau. At the same time, nonresidential building has decelerated this year after surging 24percent back in 2014, and is now predicted to be flat to slightly down given a sharp pullback for new manufacturing plant starts and some loss of momentum by its commercial and institutional building segments.”

“For 2016, the economic environment should support further growth for the overall level of construction starts. While short-term interest rates will be going up in 2016, given the expected rate hikes by the Federal Reserve, the increases in long-term interest rates should stay gradual," Murray continued. "On the plus side, the U.S. economy continues to register moderate job growth, lending standards are still easing, market fundamentals for commercial real estate continue to improve, and more funding support is coming from state and local construction bond measures. Total construction starts in 2016 are forecast to advance 6 percent to $712 billion, with gains for residential building, up 16 percent; and nonresidential building, up 9 percent; while the nonbuilding construction sector retreats 14 percent. If the volatile electric power and gas plant category within nonbuilding construction is excluded, total construction starts for 2016 would be up 10 percent, after a corresponding 8 percent gain in 2015.”

The 2016 pattern by more specific sectors is the following:

  • Single-family housing will rise 20 percent in dollars, corresponding to a 17 percent increase in units to 805,000 (Dodge basis). Access to home mortgage loans is improving, and some of the caution exercised by potential homebuyers will ease with continued employment growth.
  • Multifamily housing will increase 7 percent in dollars and 5 percent in units to 480,000 (Dodge basis), slower than the gains in 2015 but still growth. Low vacancies, rising rents, and the demand for apartments from Millennials will encourage more development.
  • Commercial building will increase 11 percent, up from the 4 percent gain estimated for 2015. Office construction will resume its leading role in the commercial building upturn, aided by more private development as well as construction activity related to technology and finance firms.
  • Institutional building will advance 9 percent, picking up the pace after the 6 percent rise in 2015. The educational facilities category is seeing an increasing amount of K-12 school construction, supported by the passage of recent school construction bond measures.
  • Manufacturing plant construction will recede an additional 1% in dollar terms, following the steep 28 percent plunge for 2015 that reflected the pullback by large petrochemical plant starts.
  • Public works will be flat with its 2015 amount, as a modest reduction for highways and bridges is balanced by some improvement for the environmental public works categories. A new multiyear federal transportation bill is being considered by Congress, and is expected to achieve passage in late 2015 or during the first half of 2016. The benefits of that bill will show up at the construction site later in 2016 and into 2017.
  • Electric utilities and gas plants will fall 43 percent after a sharp 159 percent jump in 2015. The lift coming from new starts for liquefied natural gas export terminals will be substantially less, and new power plant starts will recede moderately.