Financing Issues Slow Construction in 2023

Due to financing constraints, the number of new construction starts in the United States will rapidly decrease in 2023.

A new study from JLL says that with the federal funds rate at 5%, demand for construction loans has dropped, and requirements are getting stricter everywhere. Even though the full effect on construction spending hasn't been seen yet, and more slowdowns are expected, the value put in place is starting to rise again as more publicly backed projects in infrastructure and manufacturing start-ups and the construction industry as a whole stay healthy. The federal boost should cause total building spending to go up by about 6% from last year.

JLL also says that threats to the building industry (like geopolitics, inflation, recession, natural disasters, etc.) are still there but are seen as less urgent. The industry is still optimistic because consumer buying and the job market are still doing better than expected.

But construction work is likely to slow down in the next few quarters. Whether or not these threats get better or worse will affect demand, costs, and recovery.

Since January 2020, construction rates have gone up 17% across the country, and with only 4% unemployment and 374,000 job openings, dealing with the current pipeline is still a top priority. Even though new construction is slowing down, JLL thinks that pay will continue to increase over the next few months and grow by 5-7% year over year.

Only two of the big materials divisions that JLL tracks are expected to grow by 10% or more from one year to the next. The average expected growth is just 4%. The rise is much less than in previous years, showing that the supply chain has stabilised and improved.

Final demand, which includes margins, overhead costs, labour, and supplies, dropped 1.1% from the start of the previous quarter in July. JLL says that the drop, along with the modest growth in materials and the strong growth in wages, shows that companies are changing their strategies to deal with the expected slowdown and changing conditions in different sectors.