Mark's Corner

California Construction Sector Newsletter | JM Construction

Mark Marshall President at JM Construction

January 2026: California Construction Sector Report

 

Welcome to this weekly briefing. Currently, we are focusing on California construction cost trends 2026 based on data from January 1–8. In addition, we have analyzed patterns from late 2025 to help you make better financial decisions. Notably, all insights are drawn from recent sources to provide you with timely, actionable information.

Building Permits: Tracking Recovery and Delays

In the past week, reports show that permitting remains a major hurdle for builders. For example, only 1,011 permits have been issued for the Los Angeles wildfire recovery as of mid-December. Furthermore, San Diego has only approved about two-thirds of the homes needed to meet its local housing goals. Consequently, these delays continue to push project timelines further into the year.

Moreover, rising regulatory costs are adding extra pressure. Specifically, statutory fees for permits have contributed to a 36.5% increase in total construction costs over the last four years. As a result, many owners are finding it difficult to stay within their original budgets for new 2026 starts.

Construction Starts: The Housing vs. Technology Gap

On the other hand, new home construction is seeing a visible slowdown. In fact, homebuilding for rent dropped by 16% compared to mid-2024 levels. This is because high mortgage rates, new tariffs, and labor shortages have created a “perfect storm” for developers. Similarly, areas like Riverside face a shortage of over 150,000 units, yet traditional starts remain stalled.

However, there is a growing interest in new solutions. For instance, AI-driven construction methods are starting to emerge as a tool to fix these shortages. While traditional methods are hampered by red tape, tech-forward firms are using modular designs to speed up production. Therefore, shifting toward these modern methods may be the best way to handle the current backlog.

Material Costs: Inflation and Planning

Regarding material expenses, California construction cost trends 2026 show a steady upward movement. In particular, prices for materials rose 3.5% over the last year. Because of this, forecasts for 2026 now predict an inflation rate between 2% and 4%. Additionally, trade uncertainty and new tariffs are making prices more volatile for specific items like ADUs.

Indeed, the cost for a standard ADU could rise from $400,000 to over $430,000 this year. Thus, it is vital to monitor tariff updates closely. By doing so, you can adjust your bids before costs rise too high. Ultimately, having a flexible financial plan is the only way to protect your profit margins.

Labor and Insurance: Critical Budget Factors

Lastly, labor costs are exerting the most pressure on construction budgets. Currently, the industry faces a massive shortage of 439,000 workers. Due to an aging workforce and changes in immigration policy, this supply is expected to tighten even more. Consequently, labor prices are now rising faster than material costs in most California regions.

In addition to labor issues, insurance costs are also climbing. Especially in fire-prone areas like Los Angeles, rising premiums are making it harder to finance new rebuilds. Because these factors are all connected, we suggest setting aside a larger contingency fund. In summary, a conservative financial approach will be necessary to navigate the challenges of the coming year.

Sources This newsletter is compiled from Grok’s web lookups. Key references include:

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