EDUCATION • GOVERNMENT • HEALTHCARE/MEDICAL HOSPITALITY • MULTI FAMILY • PROFESSIONAL SPACES RELIGIOUS FACILITIES • RETAIL • TRANSPORTATION • AND MORE! Trusted Partner for Flooring Solutions in Texas Since 1974 Over 50 Years of Excellence (281) 598-6001 | 5510 Brittmoore Rd., Houston, TX 77041 | www.mekfloors.com 20CornerstoneSpring2026 agchouston.org opportunity for mid-sized work may feel more limited than it did in earlier years. Robert Morales, a senior consultant with FMI who works closely with Hous- ton-area contractors, validates what is expected for 2026 and beyond. “The strongest work is in power and utility upgrades, industrial and manufactur- ing investment, and steady healthcare and education construction,” he said, emphasizing that the biggest dollars are concentrated in infrastructure and indus- trial-driven categories rather than purely discretionary commercial buildings. Contrastingly, Morales cautions he is seeing pullback in parts of the market that depend most on private financing and near-term leasing, especially multi- family starts and new, speculative office. “The regional design pipeline indicator is below 50, which often shows up later as fewer rate-sensitive private starts. Activity favors renovations and tenant buildouts over a broad wave of new ground-up towers,” Morales said. Interest Rates Reshape Borrowing Costs According to Simonson, the biggest macroeconomic headwind for 2026 isn’t demand — it’s the cost of money itself. He expects long-term interest rates to remain high in 2026, keeping 30-year mortgage rates at or above 6%, which in turn limits first-time homebuyers and keeps existing homeowners locked into low-rate loans. “As a result, single-family construc- tion will have only a modest recovery in 2026,” he said. “Additionally, high long-term rates mean state and local governments, school districts, hospitals, airport authorities and other issues of municipal or private activity bonds will have to pay more of the proceeds for interest costs, holding down the amounts available for construction.” In Texas, 48% of AGC survey respon- dents reported that at least one project had been canceled, postponed or scaled back in the past six months. The top three reasons cited were rising material or labor costs, financing that was unavail- able or too expensive and uncertainty over funding sources. Simply put, deals pause when the debt payments get too high for the project’s expected income, or when the bank will not lend as much as needed, and the owner has to put in much more cash than planned. Rather than walking away, though, Morales sees owners responding with more discipline. “Projects that have strong owners, clear demand and a well-defined scope still move forward,” he said. “What changes is the path to award. Owners break projects into phases, narrow scope early, and demand more certainty on cost and schedule before giving full approvals.” The days of “start now and figure it out later” are fading fast. And, for con- tractors, that puts a premium on earlier validation of budget, constructability and risk allocation. Limited Labor Still the Restricting Factor If money is one constraint, labor is the other, and it may be the more binding one. When reviewing macro drivers and trends for the market, which is rated as “moderately strong,” FMI’s Hous- ton-specific forecast states, “The U.S. labor market is structurally tight: overall labor force participation has trended downward for two decades, leaving fewer workers available even as the economy grows. Within that constraint, con- struction is even more pressured, with job openings rising faster and staying higher than the U.S. average, signaling persistent scarcity of skilled trades.” In Houston, construction employment has largely plateaued after its post- COVID rebound, even as project volume continues to climb. AGC’s Texas survey reflects that pressure, as 61% of respon- dents expect it to be hard or harder to hire hourly craft workers in 2026. Rising direct labor costs were cited by 59% as a major concern, and insufficient supply of workers or subcontractors was cited by 57%. At the same time, 66% of Texas contractors expect to increase their headcount in 2026. That contradiction underscores the challenge: Firms want to grow, but they’re competing for a limited pool of people. Kiley, too, sees a problem with the future workforce due to declining birth rates in the United States. “Unless we have access to immigrant workers, we’re not going to be able to man the jobs that this market wants to build,” he said. Census Bureau data shows that 53% of construction trades workers in Texas are foreign-born, which is nearly triple the national average. Simonson’s data showed that 41% of Texas contractors reported being affected by immigration enforcement in the past six months, including jobsite visits by agents, work- ers failing to show up or subcontractors losing crews. One trend that Morales has seen take hold is contractors responding in ways they can control: investing more in train- ing, retention, tightening field leadership and planning earlier for subcontractor capacity. “Labor is still tight, even if it’s less overheated than during the COVID era,” he said. “Firms that use their lim- ited labor more effectively will win on schedule and margin.” A New Normal for Material Costs Fortunately, pandemic-related sup- ply-chain disruption has eased sig- nificantly. Only 38% of AGC’s survey respondents indicated that they had any significant supply chain problems in 2025, but construction input costs are still at a higher new normal as compared to pre-2020 prices. “Costs behave differently by package. Houston remains one of the busiest construction markets in the country, but today’s growth demands smarter decisions.
