As the first quarter comes to a close, the construction industry continues to face challenges related to rates, labor shortages and other ongoing issues that will dampen growth in the coming months.
“Caution will continue to define the year ahead,” says Sarah Martin, associate director of forecasting at Dodge Construction Network. “Inflationary pressures and worsening labor shortages are expected to persist, contributing to moderate growth in 2026.”
While total starts rose 5% year-over-year in January, industry growth was limited in the non-construction sector. “Construction activity started the year on a soft note, with several sectors experiencing notable year-to-date declines,” he says, noting that “activity is expected to stabilize throughout 2026, albeit at relatively flat levels.”
Steve Stouthamer, executive vice president of project planning at Skanska USA Building, shared this perspective. “The U.S. construction market is navigating a period of cautious transition, with modest overall growth expected amid high borrowing costs, material inflation and persistent labor shortages,” he says. “While high-growth sectors such as data centers, semiconductors and life science projects continue to drive activity, traditional residential and commercial markets remain softer, highlighting the uneven momentum shaping the year ahead.”
Residential starts declined 17% from January 2025, according to data from Dodge. The bulk of the decline is attributed to single-family starts, which fell by 22%. “Despite incremental improvements in mortgage rates and home prices, overall housing affordability remains historically low,” notes Martin, who points to recession fears and a “steadily weakening labor market” as catalysts for the decline.
Multifamily starts fell 9% year-over-year, but Dodge’s data predicts industry growth going forward. “As low- and middle-income buyers continue to be priced out of the single-family market, rental demand will remain, or buyers will opt for more affordable townhomes or condos,” says Martin.
Major multifamily structures breaking ground in January were the $335 million 38 Gramercy Park East Condominiums in New York, the $265 million Lakeview Residence in West Palm Beach, Florida, and the $200 million Homestead Gateway mixed-use residential tower in Jersey City, NJ.
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In the non-residential sector, annual starts are reduced by 10%. Healthcare and education construction were among the weakest markets, down 39% and 18%, respectively.
Commercial work, which continues to be bolstered by data centers as well as hotels and parking, has been strong, up 14% since January 2025. The $1.2 billion New York Presbyterian Cancer Center in New York, the $1.2 billion Amkor Semiconductor Advanced Packaging (Phase 1) in Peoria, Ariz. 1) in York, SC, were the largest non-residential projects to break ground in January.
The non-construction sector was by far the strongest, with starts up 46% year-on-year. Electricity and utilities skyrocketed, at a rate of 300%. The beginnings of public works, however, were more “subtle”, says Martin. Dodge reports that highway and bridge work declined 25% between January 2025 and January 2026, while environmental public works fell 20%.
In this market, the largest projects to start in January were the $12 billion Port Arthur LNG Liquefaction Phase 2 (Trains 3 and 4) in Port Arthur, Texas, the $6 billion 4.4 GW Homer City Energy Campus in Homer City, Pa., and the $1.5 billion Tehuacana Storage Project at Navarro Solar and Texas Creek 1.
In terms of materials, many construction inputs have been affected by the current tariffs. In S&P Market Intelligence’s first-quarter forecast, which was released before the current conflict in Iran, rebar prices will rise 7.2% this year.
Fabricated structural sheet metal and fabricated structural metal products are also projected to increase, at a rate of 6.9% and 5.1%, respectively.
Stouthamer expects prices to continue to rise amid current events around the world. “Global uncertainty is starting to influence construction inputs,” he explains. “Planning for contingencies, whether related to rates, supply chain disruptions, labor challenges or cost escalation, is increasingly critical to keeping projects on schedule and on budget.”
