“The COVID-19 pandemic and recession has had a profound impact on the U.S. economy, leading to a deep drop off in construction starts in the first half of 2020,” says Richard Branch, Chief Economist for Dodge Data & Analytics. “While the recovery is underway, the road to full recovery will be long and fraught with potential potholes. After losing an estimated 14% in 2020 to $738 billion, total construction starts will regain just 4% in 2021.”
He adds, "Uncertainty surrounding the next wave of COVID-19 infections in the fall and winter and delayed fiscal stimulus will lead to a slow and jagged recovery in 2021. Business and consumer confidence will improve over the year as further stimulus comes in early 2021 and a vaccine is approved and becomes more widely distributed, but construction markets have been deeply scarred and will take considerable time to fully recover. The dollar value of starts for residential buildings will increase 5% in 2021, nonresidential buildings will gain 3%, and nonbuilding construction will improve 7%. Only the residential sector, however, will exceed its 2019 level of starts thanks to historically low mortgage rates that boost single family housing.”
The pattern of construction starts for more specific segments is as follows:
- The dollar value of single family housing starts will be up 7% in 2021 and the number of units will grow 6% to 928,000 (Dodge basis). Historically low mortgage rates and a preference for less dense living during the pandemic are clearly overpowering short-term labor market and economic concerns.
- Multifamily construction, however, will pay the price for single family’s gain. The large overhang of high-end construction in large metro areas combined with declining rents will lead to a further pullback in 2021. Dollar value will drop 1% while the number of units started falls 2% to 484,000 (Dodge basis).
- The dollar value of commercial building starts will increase 5% in 2021. Warehouse construction will be the clear winner as e-commerce giants continue to build out their logistics infrastructure. Office starts will also increase due to rising demand for data centers (included in the office category) as well as renovations to existing space. Retail and hotel activity will languish.
- In 2021, institutional construction starts will increase by a tepid 1% as growing state and local budget deficits impact public building construction. Education construction is expected to see further declines in 2021, while healthcare starts are predicted to rise as hospitals seek to improve in-patient bed counts.
- The dollar value of manufacturing plant construction will remain flat in 2021. Declining petrochemical construction and weak domestic and global activity will dampen starts, while a small handful of expected project groundbreakings will level out the year.
- Public works construction starts will see little improvement as 2021 begins due to continued uncertainty surrounding additional federal aid for state and local areas. Additionally, the unfinished appropriations process for fiscal year 2021, which began October 1, raises doubt on the sector’s ability to post a strong gain in 2021. Public works construction starts will be flat over the year.
- Electric utilities/gas plants will gain 35% in 2021, led by expected groundbreakings for several large LNG export facilities and an increasing number of wind farms.