Change can come in two forms: the shifts we demand—at the ballot box, in our consumer choices—and those we can’t see coming, like natural disaster. For the building materials industry, seeds have been planted for both types, with a major about-face in political leadership, climate change exacerbating natural disasters and a global economy still finding its footing post-pandemic.
As director of strategic insights, I devote my time to studying the past to understand what may come in the future. Here, I give a breakdown of what potential developments are on my radar for the remainder of 2025, and what I believe industry executives should keep an eye on.
I believe single family starts will be in the +3% to +4% range. Various other industry sources have forecast starts anywhere from +3% to +14%. Many factors lead me to the more conservative side of the forecast range. Housing starts in the first half will be lackluster. Consumers have a lot to adjust to. Mortgage rates are likely to remain in the 7%+ range for some time (it took a while for home buyers to adjust to the idea of 6%+ rates and the same will be true for 7%+ rates). Prices of building materials and labor remain high and seem unlikely to settle much, perpetuating affordability issues. Many micro-regions of the U.S. are and will be impacted by extreme weather and natural disasters, taking some percent of potential home buyers “out of play” for a bit. Distractions and uncertainty abound, largely centered around the U.S. political arena. And while there could be some benefits of favorable policy coming out of Washington, there really is no turnkey solution that will abate the headwinds faced by the industry and prospective home buyers.
But it’s time to pay closer attention to population migration out of Florida and California. Despite the massive resilience of the people of Florida and the Southeast more broadly, the almost unimaginable destruction of the 2024 Atlantic hurricane season was enough to get a lot of people packing up and moving north. And people were flowing out of California in sizable numbers before the ongoing tragedies of the Southern California firestorms/wildfires. We’ll continue to watch migration to places like Arkansas, South Carolina, North Carolina, Ohio, Wisconsin and others.
Converting under-utilized real estate assets (many in urban settings without much developable land) into residential buildings has picked up in the last few years and will gain more momentum in 2025. Adaptive reuse will be an important part of the strategy to address the nation's housing shortage. The range of possibilities is extensive, from hotels and commercial office buildings to parking garages and shopping malls. Conversions will add multi-family residences (including affordable housing), senior housing and homeless shelters.
Office-to-apartment conversions will experience accelerated growth now that there are examples of successful conversions and better understanding of ways to drive ROI. Currently, there is approximately 34 million square feet of U.S. mall space that’s vacant and off the market. Almost 200 malls have added or plan to add housing to their footprints as a key strategy to bring residents closer to retail and restaurant businesses in the struggling properties. At least 33 malls have added apartments within their structures or nearby since the pandemic.
At end of 2024, there were approximately 600 data center construction projects in the U.S., with 28% in pre-design and 61% in design. Of all those data center projects, 32% were in Virginia, 19% were in Georgia, and 8% were in Texas.
Medical Outpatient Buildings (MOBs) will continue to dominate new construction in the healthcare sector. Primary drivers of this include the aging population (61 million people aged 65 and over, growing to 70 million by 2030 and 80 million by 2040), growing healthcare spending and patient preference.
The U.S. trade imbalance will be much larger than “normal” in the first quarter, but a big manufacturing transition is underway. The U.S., Mexico and Canada are interdependent partners and manufacturing will continue to move from Asia (especially China) to North America. The result is continued residential and non-residential growth and development in Borderlands regions (a point perhaps supported by El Paso being #4 on the 2025 Top Housing market list).
U.S. cities are competing to be home to the tallest mass timber building. Today that’s in Milwaukee (Ascent, 25 stories, 284 ft), and the next record holder is currently under construction (The Edison, 32 stories, 375 ft) in the same city. As mass timber projects gain more mainstream public attention, and people’s understanding of the benefits of wood construction and biophilic design increase, mass timber will be positioned for accelerated growth.
Home Owners Associations (HOAs) are due for change and in 2025, developers will begin to make the practical legal adjustments and operational changes that new home buyers are demanding. In principle, homeowners in a community can (and should) benefit from the existence of an HOA. But the realities of overly restrictive rules, policing and extreme penalties gained significant media attention in 2024, starting a groundswell of anti-HOA sentiment. Approximately 60% of new single family homes are built in HOA-governed communities. A fair and equitable HOA can be an important differentiator and competitive advantage for developers to attract prospective buyers.
Sustainable housing growth in the West is not possible without enough water (and power) supply and reliable infrastructure for delivery. My predictions for 2022 included an increase in the use of cloud-seeding technologies, primarily by Western states, to increase precipitation and water levels in the Colorado River basin. But although cloud-seeding research, testing and use did increase modestly in 2022, activity and public attention fell in 2023 and 2024 (with states bearing most of the burden and the U.S. federal government spending just $3 million annually on it).
In 2025, cloud-seeding will work its way back into the national conversation. Cloud-seeding is not a silver bullet solution to overcome drought brought on by climate change, but it can potentially be an important contributor in a complex, long-term, multi-prong strategy to get more water in the West.
Outdoor living has held a significant share of residential R&R dollars for several years, but the pendulum is swinging back towards indoor R&R projects. The importance of kitchen and bath projects can’t be overlooked, but a range of other project types will gain share as people invest to adjust their personal spaces to deliver their individualized definition of health, wellness and happiness at home.
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