2026 Construction Industry Forecast 

Bottom line 

Economic headwinds persist, but growth remains possible 

The U.S. construction industry faces slowing economic momentum, high interest rates, and tariff uncertainty. GDP growth for 2026 is projected at just 2.3%, signaling modest expansion amid fiscal challenges like rising deficits and debt. 

 

Labor and cost pressures demand strategic action 

Immigration policy shifts and aging workforce trends are tightening labor supply, while material costs continue to rise under aggressive trade policies. Experts urge firms to prioritize cost control, workforce upskilling, and automation to maintain competitiveness. 

 

Bright spots: Data centers and institutional projects 

Despite overall softness, data center construction is booming—up 33% in 2025 and projected to grow another 20% in 2026—driven by AI demand. Institutional sectors like health care and education show resilience, though demographic and funding challenges temper long-term outlooks. 

Since our forecast last year, the editors at Glass Magazine have continued to watch a rapidly changing economic environment, paired with a policy environment that still remains very fluid. Long-term interest rates remain stubbornly high, inflation rates have stalled, home building activity levels remain disappointing, tariff rates for construction continue to rise and shift, and construction labor shortages have grown due to restrictive immigration policies. Despite all this, the outlook for 2026 is largely unchanged from what we reported in January 2025—challenging for U.S. construction, with reasons for optimism in the coming year. 

Maybe it’s the American ethos of self-reliance—the sentiment that when times get hard, we respond with hard work, initiative and resilience to create opportunities and prosperity—that has the leading construction industry economists responding with “silver lining” forecasts while also hinting that we may be on the brink of a recession.

Economic Outlook 

An economic slowdown is emerging 

The construction industry entered 2025 with strong momentum driven by major government investments like the Infrastructure Investment and Jobs Act and CHIPS Act, along with substantial private-sector spending on data centers for cloud and AI infrastructure. However, the macroeconomic environment has since deteriorated greatly thanks to rapid policy changes that have created uncertainty in the industry. Consumer spending has stalled, housing sales have declined and the job market is weakening. 

The One Big Beautiful Bill Act, or OBBBA, will provide limited short-term economic stimulus while creating long-term fiscal challenges through increased deficits and debt, according to Dodge Construction Network. The near-term benefits come primarily from business incentives, including the qualified business income deduction, R&D expense provisions, and qualified opportunity zone renewals, though these last renewals-related construction projects won’t begin until 2027. Then there’s the bill’s fiscal cost: the Congressional Budget Office estimates OBBBA will add $3.4 trillion to deficits over 10 years, pushing the debt-to-GDP ratio from approximately 100% currently to around 130% within a decade, potentially causing severe long-term economic damage. 

Examining the economy from a broad perspective, Michael Guckes, chief economist at ConstructConnect, says the “GDP forecast shows modest growth for the foreseeable future, with projections of just over 2% for 2025 and 2.3% for 2026—nothing to get too excited or write home about.” 

“As of right now, the construction industry as a whole is sort of on the same knife edge as the rest of the economy. It’s slowing down. It’s not really clear whether it’s in recession or not, but it is awfully close and very uncomfortable,” says Eric Gaus, chief economist, Dodge Construction Network. 

Labor market cools off 

The construction industry’s most significant direct impact from OBBBA stems from the massive expansion of Immigration and Customs Enforcement and the resulting large-scale deportations. Foreign-born workers constitute approximately 30% of the construction workforce nationally, according to statistics from the U.S. Census Bureau, though this figure reaches 35% to 40% in some states like California and Texas, with a substantial portion being undocumented. This concentration of foreign-born labor has attracted ICE attention, though numerous uncertainties make it difficult to predict the exact impact. Beyond construction specifically, Dodge says increased ICE enforcement has significantly altered projections for household formation, which has been primarily driven by immigrant rather than domestic population growth.

Immigration policy presents the most significant wildcard for 2026, says Ken Simonson, chief economist, Associated General Contractors of America, who emphasizes that construction is “much more dependent than the broader economy, 34% versus 18% of the broader workforce, on foreign-born workers,” with some states like California, Texas, New Jersey, Maryland, and Washington, D.C., showing “50% or more foreign-born” workers in construction trades. While “not many firms have been affected yet by jobsite raids,” Simonson warns that “the Department of Homeland Security has gotten tremendous boost in funding and staffing… and next year could be an active one for affecting jobsites.”

Simonson also notes that “total construction employment has been tapering off pretty steeply over the past three years.” The employment picture reveals a stark divide: residential construction “has been shedding jobs on a year-over-year basis since early this year,” while non-residential construction continues to add jobs “but it’s also slowed down.” The weakness is spreading geographically, with only 28 states showing employment increases compared to 35 to 45 states a year earlier, and the decline now affecting previously strong regions, including the West Coast, Northeast, Rocky Mountains, and for the first time, some Southeast states.

Construction firms continue to compete aggressively for workers through wage increases. “Construction is spending more to entice people to come and work in construction and stay in the field,” says Simonson, with average hourly earnings staying “above a 4% increase for several years now.” However, firms appear hesitant to expand their workforce, as hiring rates remain near historic lows and job openings have “plunged” by 38%. Simonson realizes this “might sound pretty ominous,” and while he says the data on layoffs and worker retention suggest a wait-and-see approach across the industry, he remains optimistic that there will be more work in 2026.

“We’re seeing a long-term slowdown in employment in the construction industry,” says Dodge’s Gaus. “We’re also seeing a slowdown in average hourly earnings. Some of that might be due to businesses not making decisions about going forward with construction projects.”

Glazing firms still struggle to find workers 

62% say recruitment is biggest hurdle 

Most difficult positions to fill: 

• Glaziers and field labor (53%) 
• Project managers (51%) 
• Estimators (27%) 

Challenging material costs 

Construction cost pressures are mounting on multiple fronts, according to ConstructConnect’s Guckes, and material costs are currently up about 5% year-over-year, but he warns that “we are in early innings when it comes to construction material prices and where they could go.” He draws comparisons to 2018-2019 when 25% tariffs on aluminum and steel drove construction material prices as high as 8%, noting that current trade policy “is much more aggressive this time around.”

The key to navigating these economic headwinds, says Guckes, is being ruthless in controlling costs. “If you want to protect your profitability, you have to be absolutely ruthless in terms of controlling costs this year and next year,” says Guckes. “Figuring out creative ways to manage the supply chains, to control your profit margins, because we’re already seeing pressures everywhere. Firms have been sacrificing their profit margins to help keep prices stable, but that is only a temporary fix. For 2026, be ruthless, control costs and make sure that you’re bidding.” 

From Uncertainty to Strategy: Brighter Construction Market Ahead 

Is the worst behind us? As economic uncertainty begins to fade, Connor Lokar of ITR Economics offered a data-driven perspective on what lies ahead. In his annual economic forecast, “Gearing Up for 2026,” Lokar cut through the noise to reveal a clearer economic outlook of the next business cycle through mid-2025 and into 2026—one shaped by rising industrial production, stabilizing construction backlogs, and strategic opportunities amid inflationary pressures. With rates-of-change analysis and global trends pointing toward a cautiously optimistic outlook, the data tells a compelling story: while challenges remain, the foundation for growth is already forming. 

“The economy is not collapsing today, and it’s not going to collapse tomorrow. It is not going to collapse next year,” says Lokar. “For the first time in basically two years... we have positive growth. The economy is growing. It’s not going to stop growing. It’s going to accelerate in 2026.” 

Beyond the Noise: A Clearer Economic Picture for 2026 

Lokar’s message is clear—don’t let headlines and political distractions cloud your strategic vision. His forecast emphasized the importance of focusing on economic fundamentals and leveraging reliable forecasting tools that allow businesses to plan with confidence, even in a volatile environment. Lokar highlighted the use of rates-of-change analysis, which helps define and anticipate shifts in the business cycle, offering early signals for strategic pivots. As of mid-2025, the data suggests that the economy is entering a phase of recovery, with industrial production expected to grow modestly through 2026.

The Data Tells the Story: Construction, Inflation, and Opportunity 

The construction sector serves as a microcosm of broader economic trends. Lokar pointed to diverging paths within the industry: single-family housing is poised for a rebound in 2026, while multi-family and nonresidential construction face continued softness. Yet, not all segments are slowing—data center construction is booming, with growth exceeding 40%, making it a bright spot for investment and development. 

Backlogs are stabilizing, and the Architecture Billings Index has been signaling a shift since early 2024. These indicators suggest that while the sector is navigating headwinds, the worst may be behind it. Lokar encouraged businesses to be geographically specific in their planning, noting that population growth and regional dynamics will play a critical role in shaping demand. 

Inflation remains a central theme. While the easing of price pressures seen in 2023 and 2024 may be over, Lokar warned that costs are rising again, especially in construction inputs like lumber, structural metals and labor. CPI and PPI are both forecasted to climb in 2026, reinforcing the need for robust cost management strategies. 

Strategic Imperatives for the Next Cycle 

Lokar’s advice is both pragmatic and forward-looking. He urged companies to digitize and embrace AI to stay competitive, develop inflation strategies that go beyond short-term fixes, focus on cost control and margin protection, especially in asset-heavy sectors, and plan for a pivot between 2028 and 2032, when demographic and fiscal pressures may reshape the landscape. 

He also cautioned against expecting dramatic interest rate cuts in 2025, noting that government spending and rising debt levels are likely to fuel long-term inflation. With the U.S. requiring 18% of its revenue just to service interest payments, the fiscal outlook remains a concern.  

Conclusion: Clarity Through Data 

Lokar closed with a call to action for leaders who want to navigate the next phase of the economy with clarity and confidence. By focusing on the data—not the noise—businesses can position themselves for resilience and growth. “Most businesses in this room are going to have a better 2026 than they’re going to have here in 2025, and I want to make sure that you’re ready for that,” Lokar says. “A lot of businesses are going to go under... and a lot of people are going to make more money than they’ve ever made before. This is an opportunity if you see it coming. Be the buyer, not the seller. Leverage that. Grow your business... and be ready to attack 2030 and not fall victim to it.” 

Economic Outlook 

• Economic growth is expected to be below potential, which correlates to a sizable downside risk in the near term for construction activity. 

• Consumer spending is expected to slow down, from 2.8% growth in 2024 to 2.1% in 2025 and 1.1% in 2026. 

• The labor market is expected to weaken; unemployment will tick up from 4.0% in 2024 to 4.2% on average in 2025 and 4.7% in 2026. 

Commercial Building Outlook 

Overall market outlook 

18% The percentage of foreign-born workers in the glaziers’ trade.

Rising uncertainty around tariffs caused many business owners and developers to delay project decisions in the first half of the year, and continued uncertainty will continue to weigh on construction starts, according to economists of Dodge’s 2026 Outlook. As a result, total nonresidential construction is anticipated to expand by a moderate 4% in 2025 and 3% in 2026. Much of that growth will be from continued strength in data center construction and groundbreakings on high-value megaprojects in select sectors. Higher materials price assumptions and more construction activity pivoting to the alteration side of the market will also prop up the dollar value forecast. From a square footage perspective, total nonresidential construction will decline 2% in 2025 before re-expanding by 3% in 2026. 

According to AIA, the Consensus Construction Forecast economists predict that overall spending on nonresidential buildings not adjusted for inflation will increase only 1.7% this year and grow very modestly to just 2.0% next year due to high long-term interest rates, falling consumer confidence and labor shortages as factors limiting growth. 

ConstructConnect’s Michael Guckes notes that non-residential building faces particular challenges with a projected decline of 6.7% in the U.S. for next year, with manufacturing being a major factor in that weakness due to a projected decline in new manufacturing facility construction. 

The Data Center Phenomenon 

Data centers are experiencing remarkable expansion and are the primary driver of growth in commercial construction. Without data centers, commercial construction remained mostly flat through most of 2024 and into early 2025, indicating the sector was essentially stagnant aside from this one segment. Dodge’s Eric Gaus notes they’re “going gangbusters,” stating: “If there’s growth in the DMI [Dodge Momentum Index] that’s for multi-year purposes, the growth is almost all coming from data centers.” In 2025, data center construction is projected to eclipse traditional office construction in terms of value of starts, and the sector will “run away with it in 2026.” 

The numbers are striking: approximately 18% growth in 2025 and around 25% growth in 2026, representing consecutive years of double-digit expansion. After increasing by more than 50% last year, spending is expected to grow by another 33% this year and by an additional 20% next year. ConstructConnect’s Michael Guckes reported that data centers have “doubled almost every year since 2021,” growing from $7 billion in 2022 to $32.9 billion through September 2025, with potential for “yet another year of doubling growth.” 

Gaus expects this momentum to plateau in subsequent years (years three through five), transitioning to slower growth rather than declining growth. The eventual plateau stems primarily from resource constraints. As Gaus explains, “We need a lot more power and water and creative solutions to building these sites near users without damaging the local communities that are there.” Some communities have pushed back against these facilities, says Gaus, though the overwhelming demand and financial incentives make complete obstruction unlikely. Even in this sector, there are growing concerns that electrical equipment shortages, power requirements and community opposition may slow the pace of growth. 

Virginia and Texas host the vast majority of large-scale data centers, primarily due to favorable regulations and faster permitting processes. Gaus offers an interesting observation about optimal versus practical locations; states like Colorado would be naturally ideal due to cooler climates reducing cooling costs, but regulatory hurdles make the speed-to-market challenging. He notes that “by the time they are actually built, they’re more or less obsolete for the purpose with which they were planned for,” making rapid construction timelines critical. 

Perhaps most notably, Gaus identifies a significant trend toward medium- and large-scale data centers—distinct from massive hyperscale data centers—that are “targeted towards the end user” for final computation needs. These smaller facilities are being strategically located closer to consumer populations rather than concentrated in traditional data center hubs, representing a geographic diversification of the sector. 

AIA’s Kermit Baker says the consensus forecast predicts, “very modest growth, probably not even offsetting inflation, for the remainder of 2025 and into 2026, with particularly weak performance expected in commercial sectors outside of data centers, which are the only reason the office market shows any growth at all.” 

ConstructConnect’s Kristy O’Brien observes: “I think data centers are the buzzword of the day. It’s a standout performer, driven by the relentless demand for AI and it’s showing no signs of slowing for now.” 

Deloitte’s 2026 Engineering and Construction Industry Outlook also notes areas of optimism. A surge in AI-driven data center construction and an associated focus on energy infrastructure led to segment growth in 2025. Business investment in construction structures is projected to pivot from a 2025 decline in funding to modest growth (nearly +1.8%) in 2026, with AI-related data center outlays continuing to support engineering and construction work.

The consensus is that data center growth will slow down in 2026. 

• Dodge Construction Network 68.4% in 2025 | 39.9% in 2026 
• FMI Corp. 32.1% in 2025 | 18.9% in 2026 
• ConstructConnect 19.9% in 2025 | 13.5% in 2026 
• Associated Builders and Contractors 22.1% in 2025 | 14.2% in 2026 

Mega projects driving spending 

Much of the overall growth in nonresidential building spending in recent years has come from a few key sectors, namely manufacturing aided by funding under the Infrastructure Investment and Jobs Act, the CHIPS and Science Act, and the Inflation Reduction Act; warehouses given the dramatic rise in e-commerce during the pandemic; and data centers to fuel the investment in artificial intelligence. Despite overall weakness, mega projects and data centers are creating a construction boom in specific segments. ConstructConnect’s Michael Guckes reports that mega projects—those with $1 billion or greater total construction cost—reached “about 134 billion dollars of total work” through September 2025, which is “43 billion dollars or 47% greater than the 91 billion dollars we saw this time last year.” He stresses that “the impact of mega projects on construction simply cannot be underestimated or underappreciated,” as they explain how spending remains strong despite declining project counts.

Commercial Sector: Signs of Movement After Extended Pause 

Commercial starts will grow 8% in 2025, bolstered by growth in data center construction and parking garages, according to the AIA Consensus Construction Forecast. The commercial sector outlook is about on par with the broader industry, with a projected 1.5% increase this year rising modestly to 3.9% in 2026. Growth in commercial construction will be more diversified in 2026, as retail, warehouse and hotel activity begins to pick up. Further rate cuts from the Federal Reserve and stronger business and consumer spending in 2027 will drive the 7% acceleration over the year. 

Planning activity has increased, says Dodge’s Eric Gaus, who compares the sudden activity to wallflowers at a dance suddenly entering the dance floor. Even so, he remains cautious about how long activity will stay elevated. “We’ll see how far this goes and how long that trend persists.” 

Despite increased planning activity, Gaus identifies “a fairly large caveat”—project delays are increasing significantly and getting longer. He distinguishes between formally reported delays, or officially classified delays (which aren’t showing major red flags), and the actual time projects spend in the preparatory “pipeline” phase before actual construction begins. The delays are “particularly acute in health care and warehousing and manufacturing, but we’re seeing this across the board,” says Gaus. For manufacturing, warehousing and health care, timelines have increased “from 20% to 25% longer,” potentially adding two years or more to the development process. This means the recent DMI surge might not translate to actual construction starts until “the end of 2027 and maybe not even the middle of 2027.”

Traditional office is adapting 

Office construction is struggling in the post-pandemic environment. Dodge’s Gaus notes that in 2025, “data centers eclipse office in terms of the value of starts of total office traditional office,” and data centers will significantly outpace office construction in 2026. 

Spending in the office category has been hampered by remote work that has produced national vacancy rates approaching 20%. Spending by building owners to make the space more desirable has spurred reconstruction spending, but not enough to offset the decline in new construction. Data centers have kept the overall category afloat because the U.S. Census Bureau classifies these facilities within the broader office category. However, netting out spending on data centers, spending on offices is expected to decline 3.6% this year, and another 2.0% next year, according to AIA Consensus Construction Forecast economists. 

However, Gaus identifies interesting trends in what is being built. “We’re seeing more and more of the high-end being built and a lot of renovations to the high-end...taking a B or C [classified commercial building] and making it an A.” He describes an emerging “hub and spoke” model where companies create smaller satellite offices in suburbs to accommodate workers who relocated during the pandemic. These involve renovating existing B or C grade buildings with nice lobbies and subdivided spaces for specific companies, rather than new construction. While some new construction continues in major cities, Gaus indicates it’s not “the vast majority of what we’re seeing.”

AGC’s Ken Simonson notes that the non-residential sector shows the most dramatic contrasts, particularly in office construction where he reveals that “apparent flatness in office [construction] is really made up of a 30% spike in data centers, a 17% decline in private office.”

Retail: eCommerce impacts moderating 

Spending on retail facilities has been weak due to growth in e-commerce. More recently, however, the decline in warehouse spending—much of which is included in the broader retail category—has pulled down these totals. The retail category is expected to see less than a 1% decline in spending this year before reversing to 2.0% growth next year, per the AIA Consensus Construction Forecast. 

Retail stores, warehouses, and hotels are the most vulnerable to a pullback in consumer spending, more selective lending standards, and higher materials costs, according to Dodge. These sectors, therefore, face the most near-term risk.

Hotels in a state of recovery and resilience 

The hotel sector presents a unique picture. Dodge’s Gaus notes it “looks a little bit different, but only because they got hit so hard during the pandemic, everything really slowed down in 2022 and 2023 that the levels look odd.” When compared to pre-pandemic periods rather than the depressed 2022-2023 baseline, hotel timelines have also “slowed down considerably.” 

However, Gaus sees resilience in the hotel sector due to renovation cycles that “feed on themselves for several years regardless of the economic landscape.” He explains that the hotel industry is highly competitive, and renovations are “a lot easier and faster to get through the pipeline” than new construction, requiring fewer permits and allowing flexible cost decisions. Since this renovation cycle has begun, it will likely continue. 

The hotel sector saw steep declines in spending in the early days of the pandemic, but an increase in travel has benefited the outlook for these facilities. The forecast is for a 3% growth in spending this year and an additional increase of 6% in 2026. 

Additionally, Gaus observes increasing business travel as “more people are recognizing that getting together, whether in conferences or in-person meetings, the personal connections are really helpful to get through times of uncertainty.” This business travel growth might offset decreases in leisure tourism, he says. 

In its Engineering & Construction Outlook, FMI Corp., a consulting and investment banking firm focused exclusively on the built environment, expects lodging to grow around 8% annually due to strong occupancy rates. 

Institutional sector: Strength tempered by growing concerns 

Institutional starts were on a tear in 2024 with large projects in the health care, recreation, and transportation sectors pushing starts up 18% to $227 billion. This year, even more large projects will start, including the second phase of the Rikers Island prison replacement and the Midtown Port Authority Bus Terminal Replacement in New York. In aggregate, institutional starts will expand by 1% in 2025, even as health care and recreational starts post solid growth. Unfortunately, more muted education, dormitory and transportation construction will offset growth in the other sectors. 

Like commercial construction (excluding data centers), institutional construction also remained “mostly flat” through most of 2024 and early 2025, according to Dodge, reflecting the broader pattern of businesses “sitting on their hands” and not actively planning new projects, though not completely abandoning planning either. 

Institutional facilities are expected to be the strongest sector with projected gains of 6.1% this year and another 3.8% in 2026. AIA Consensus Construction Forecast economists expect institutional facilities (e.g., health care and education) to be the strongest sector, with gains of 3.8% in 2026. 

Entering this year, spending on institutional facilities was expected to outperform both the commercial and industrial sectors over the 2025-2026 period. While reasonably healthy growth is still expected, concerns are rapidly mounting.

Health care: Growing but facing headwinds 

Health care is specifically called out in Dodge’s report as one of the sectors experiencing the most acute project delays, among the worst affected alongside warehousing and manufacturing.

For the health care sector, federal spending cuts to key funding programs like Medicaid and the Children’s Health Insurance Program will reduce spending on health care facilities. Spending is still projected to increase 4.3% both this year and next, but there is a higher degree of uncertainty that will remain until final programmatic decisions are made. 

Hospital construction should be more insulated in 2026 than urgent care clinics and nursing homes, say Dodge analysts. 

Education: Multiple challenges converging 

As risks to federal funding and endowments increase for colleges and universities, and as demographics weaken for K–12 schools—due to a sustained drop in national birth rates, domestic migration and immigration trends—education construction will decelerate from 6% growth in 2024 to only 1% in 2025, according to Dodge’s report.

The outlook for the education market is a bit more complicated. Education is the largest institutional sector, accounting for over a third of all spending in this category. However, there are three major areas of concern regarding the outlook. 

• The first has to do with reductions in federal spending on health care research. Much of this research is conducted through colleges and universities, so a reduction in research funding will reduce the need for research facilities at these institutions. 

• Secondly, international students comprise about 6% of the total U.S. higher education population. At some institutions, the share is much higher. For example, at Harvard University, international students account for about a quarter of the institution’s enrollment. So, greater restrictions on visas for international students will reduce enrollments and therefore the need for education facilities. 

Finally, longer-term demographic trends are not favorable for education construction. The Census Bureau estimates that the size of the under-18 population in the U.S. will decline by over three million persons, or by 4.3%, over the next 10 years. This will reduce the need for secondary school facilities. 

AGC’s Ken Simonson notes that higher education construction faces the most severe threats, as “the administration again has canceled lots of contracts and grants for universities and other research institutions” and “canceled visas or denied them for the researchers and faculty and students.” 

Adaptive Reuse on the Rise 

Commercial building conversions—such as office construction reimagined and renovated to multifamily—have emerged as an important strategy across the country, according to AIA’s Kermit Baker, who reported that “there were over 25,000 multifamily units created last year from other facilities, and that number has been growing quite rapidly.” These conversions now account for “a little over 7% of all multifamily units built nationally.” Interestingly, “Hotel conversions to multifamily have outpaced office conversion for the last two years,” along with conversions of industrial facilities, warehousing, schools and other commercial buildings. New York is “using the oversupply of office space to help offset the lack of affordable housing, with an estimated 10,000 new housing units added in Manhattan alone since 1992 from office conversions,” Baker says. 

The reconstruction market has become increasingly significant as Baker explained that “reconstruction activity is a growing share of the overall construction market, not just in housing, but throughout the nonresidential building [sector] as well.” Over the past two decades, as construction activity has slowed and building stock has aged, reconstruction work has increased its share to now represent 40% of architecture firm billings, say Baker. “Virtually all architecture firms worked on at least some reconstruction projects over the past year, with the most common goal being modernizing aging building stock.” 

“With the construction market unusually unbalanced, there are more opportunities in the reconstruction realm, particularly adaptive reuse,” adds Baker. “I think the demand is there for conversion of un-utilized facilities. And on top of that, we’re seeing more incentives to undertake these projects. There’s more motivation by state and local governments to support these projects because they’re really supporting the economic health of an area. That combination of strong demand and growing incentives make that a really key market to get into.” 

Construction Outlook 

• In 2025, total construction starts expanded by 3.2% to $1.21 trillion. Meanwhile, total building construction (excluding nonbuilding sectors) decreased by 2% in square footage this year. 

• Despite weakening fundamentals, data center construction will help support total dollar value, higher building costs, and megaproject activity. 

• In 2026, total construction will grow 4% to $1.26 trillion. Nonresidential building starts will rise 3% to $481 billion, residential starts will increase 6% to $418 billion, and nonbuilding starts will rise 4% to $361 billion. 

Source: Dodge Construction Network 

Residential Building Outlook 

Dodge’s Eric Gaus highlights a significant divergence between single-family and multifamily sectors. Residential construction, particularly multifamily, will be a major driver supporting growth over the coming year. However, Gaus notes that single-family housing “has been coming down quite a bit throughout the year,” while multifamily “has remained relatively strong” with good pipeline indications continuing into 2026. 

AGC’s Ken Simonson predicts that residential construction faces continued headwinds, with single-family down 2%, multifamily down 9% and improvements down 8%. While Simonson believes “we may be near the bottom on single-family and multifamily,” he notes that “30-year mortgage rates at 6.25% remain not low enough to bring first time home buyers back to the market,” suggesting “any recovery in residential will be pretty slow and modest.” 

Single-family housing 

The single-family housing market faced significant headwinds in 2025, with construction remaining underwhelming due to persistent affordability challenges. Mortgage rates hover between 6.5% to 7%; home prices are historically elevated, and growing recession risks combined with a weakening labor market have caused many potential buyers to delay purchases. 

In Dodge’s annual economic forecast, Eric Gaus revealed that the outlet has revised down its single-family housing forecasts considerably. “We are actually pulling back our forecasts of single-family housing because we don’t see as many units needed five years from now,” he says. This revision stems from a counterintuitive factor: declining population growth due to changes in immigration policy. “We’re not getting as many people coming to this country from abroad because of our new stance on immigration policy and therefore that’s where we got a lot of our growth in households and if we don’t have more households we don’t need quite as many houses.” He suggests the housing shortage might partially resolve itself through reduced household formation rather than increased construction. 

Addressing the housing affordability crisis that has dominated the narrative for four to five years, Gaus estimates the national housing shortage at approximately 1.2 million units that still need to be built to achieve market balance. However, the shortage has evolved significantly since 2022, when it peaked at around two million units and was “kind of everywhere across the country.”

The construction industry responded effectively to the shortage, particularly in the South, building “tons and tons of houses,” says Gaus. By Q1 2025, some markets—especially in the South and Midwest—have actually become oversupplied, as evidenced by rising inventories. “The housing market in the South and mostly the Midwest are doing pretty well,” but significant shortages persist in expensive urban markets like California, New York, Chicago and Boston, he explains. 

Gaus emphasizes that the core issue is housing affordability rather than raw supply. “Where they are built and what type they are really, really matter. So, they need to be affordable and they need to be in those states in order for us to overcome that shortage.” The challenge is that states with the greatest need also have the most difficult zoning restrictions to navigate. 

As the housing shortage gradually resolves over the next five years, demand for new construction is expected to normalize, resulting in a relatively flat outlook for single-family starts. Dodge forecasts single-family housing construction will finish 2025 down 5% to 909,000 units, followed by only marginal improvement of 0.9% to 917,000 units in 2026. Looking beyond 2025, slower immigration rates will further constrain household formations and overall housing demand, contributing to the subdued growth trajectory. 

AIA’s Kermit Baker emphasizes that “housing recovery is really central to the health of the broader construction industry, but little can be done at the federal level to solve the housing problem.” He notes that different regions are taking creative approaches: California has “greatly eased the ability of a homeowner to put an additional unit, what’s called an accessory dwelling unit, on a single family lot,” with ADUs now representing 15% of new single-family units, “up from just 5% seven years ago.”

Multifamily sector 

In contrast, the multifamily sector shows more promise for 2025, driven by buyers priced out of single-family homes who are turning to rentals or more affordable townhouses and condominiums. After multifamily completions peaked in Q1 2024, planning activity has steadily increased, correlating with year-to-date growth in multifamily starts. The rental vacancy rate stood at 7.0% in Q2 2025 as the market absorbed new projects. Dodge predicts multifamily starts will expand 6% to 640,000 units in 2025 and another 5% to 670,000 units in 2026, before pulling back through the remainder of the forecast period due to weaker demographic trends and reduced housing demand.

While not as large as the 2022-2023 surge, Dodge’s Eric Gaus sees “another mini wave” of multifamily projects starting, driven by persistent shortages in high-cost markets. Planning data shows multifamily will remain strong through the rest of 2025 and into 2026.