Date: September 18, 2025 Edition: Volume 1, Issue 9
Welcome to JM Construction’s custom newsletter on the latest developments in California‘s construction sector. This edition focuses on building permits, construction starts, material and labor cost trends, and other key factors relevant to financial decision-making for construction companies. Drawing from recent data and analyses, the outlook shows a mixed landscape: declining residential permits and starts amid economic uncertainty, rising costs driven by tariffs and supply issues, but growth in infrastructure and public projects offering opportunities. These trends suggest budgeting for higher expenses, diversifying into public works, and preparing for labor constraints to maintain profitability.
Building Permits: Sharp Declines Signal Slowdown in Residential Sector
California‘s building permit activity has hit a low point in 2025, particularly in the housing market, which could impact project pipelines and revenue forecasts for residential-focused firms. In the first half of 2025, the state issued just 49,400 permits for new housing—the lowest since 2014—down 4% from the prior year and 13% below pandemic peaks. This slowdown is attributed to elevated mortgage rates, economic uncertainty under the current administration, and builder hesitancy. Single-family permits dropped 7% year-over-year to 29,500, while multifamily permits accounted for 40% of total activity but remain below pre-pandemic levels.
Nationally, August 2025 permits fell 3.7% from July to a seasonally adjusted annual rate of 1,312,000, with California mirroring this trend at 16% below the long-term average. However, positive legislative changes aim to streamline processes: AB 253, passed in September 2025, allows private professionals to conduct plan checks if local departments exceed 30 business days, potentially reducing delays and costs for future projects. Additionally, the small work licensing exemption increased from $500 to $1,000 under AB 2622, enabling more minor jobs without full licensing, though this may heighten competition for small contractors.
For financial decisions, this suggests caution in residential bidding—expect fewer opportunities and longer approval times. Shift focus to public or commercial sectors where permits are more stable, and factor in 10-20% contingency for delays.
Construction Starts: Residential Lags, Infrastructure Booms
Construction starts in California reflect a bifurcated market: residential activity is subdued, but infrastructure and public projects are accelerating, supported by federal funding. Residential starts are projected to rise modestly by 12% nationally to $441 billion in 2025, but California‘s single-family starts are down 4.3% in early 2025 phases, with multifamily expected to decline due to economic stumbles and trade tensions. Semi-annual data ending February 2025 shows single-family starts up slightly at 4.3% year-over-year, but overall residential development is hampered by inflation, tight credit, and a forecasted recession delaying full recovery until 2027-2028.
In contrast, nonresidential and infrastructure starts are robust. Overall construction activity is forecasted to grow 6.5% in 2025, driven by civil projects up 22.6%, including high-speed rail (171 miles under construction, creating 15,500 jobs) and transportation upgrades. The state anticipates $53.9 billion from the Infrastructure Investment and Jobs Act (IIJA), fueling school bonds ($59 billion approved) and clean energy initiatives. Major bids in September include UCLA student housing ($310,000 sq ft) and UC Berkeley clean energy upgrades, with 99,000+ active projects tracked statewide.
Financially, this uneven growth means residential firms may face revenue dips—consider pivoting to infrastructure subcontracting for steady cash flow. Public projects offer lower risk but require compliance with new laws like SB 956 (extending design-build for schools indefinitely).
Material Costs: Increases Driven by Tariffs and Supply Disruptions
Material costs are trending upward in 2025, posing risks to margins and requiring proactive sourcing strategies. Construction input prices rose 0.5% in March (first three-month streak since 2023), with nonresidential up 0.6%, at a 9.7% annualized rate through Q1. By June, prices increased 0.2% monthly, up 2.1% year-over-year, driven by copper, fabricated metals, and tariffs. Proposed 60% tariffs on Chinese imports (potentially 100% on steel) could add volatility, especially post-wildfires boosting demand for lumber (California supplies 10% nationally) and fire-resistant materials like steel and concrete.
The California Construction Cost Index (CCCI) tracks ENR data for SF/LA, showing steady rises in trade labor and materials; Q1 2025 inputs to residential are up 1.7%, nonres buildings 0.6%. Wildfires have inflated reconstruction costs—a $500,000 home in 2018 now costs $667,500 to rebuild—exacerbating shortages in lumber, steel, and concrete. To build a house in California averages $200-400 per sq ft ($650,000 total), with materials at 40-60% of direct costs.
For your company, lock in supplier contracts early and explore alternatives like low-carbon concrete to mitigate 25-28% above-historical costs through 2025. Tariffs may add 10% to averages, so model scenarios for 6-9% overall inflation.
Labor Costs: Rising Wages Amid Shortages and Policy Shifts
Labor costs are increasing due to shortages and wage hikes, straining budgets but creating opportunities for skilled firms. Total compensation in Los Angeles rose 3.9% year-over-year ending June 2025, down slightly from 4.3% prior but above national 3.6%. Statewide minimum wage hit $16.50/hour July 1, 2025, with locals like West Hollywood hotels at $20.22; exempt salaries now $68,640 minimum. Construction labor averages $20.66/hour, but skilled trades (e.g., electricians) command premiums amid shortages—40% of workers retire by 2035.
Immigration enforcement and deportations threaten supply, with one-third of workers migrants; wildfires and Olympics prep heighten demand, projecting 25% residential increase in LA 2025-2026. Benefits rose 3.4%, pushing total costs up. Nonfarm job growth is 1.1%, with construction key to stability.
Financially, add 3.5-4.6% to labor budgets; invest in training/upskilling for retention. Union exemptions extended to 2038 under AB 1034 may ease PAGA risks for some.
Other Key Information for Financial Decisions
- Regulatory and Sustainability Shifts: 2025 Building Energy Efficiency Standards mandate heat pumps and electric-readiness from January 2026, adding upfront costs but qualifying for incentives. AI permitting in Lancaster speeds reviews; balcony inspections deadline extended.
- Economic and Risk Factors: Optimism survey shows 63% expect growth, but challenges include tariffs, wildfires (12,000 structures lost), and recessions delaying recovery. Commercial down 14.8% in 2024; focus on data centers, renewables.
- Opportunities: $180B infrastructure over decade; nonresidential starts up 9% single-family, 16% multifamily nationally. Prep for 2028 Olympics boosting transportation.
- Recommendations: Diversify to public/infrastructure (6.5% growth); build 10-20% contingencies; hedge materials; monitor Fed rate cuts for financing relief. Nonresidential prices up 6% annualized H1 2025—bid aggressively but conservatively.
Stay informed—next edition in October. For personalized advice, consult financial experts.
Sources: All insights derived from Grok’s web lookups, including U.S. Census Bureau, ConstructConnect, Associated Builders and Contractors, California Energy Commission, and industry analyses from September 2025 reports.