California Construction Sector Newsletter

Date: December 25, 2025 Edition: Holiday Special – Year-End Update

Welcome to this custom newsletter tailored for construction company owners in California. This edition covers the latest developments from the past 7 days (December 18-25, 2025) on building permits, construction starts, material and labor costs, and other financial decision-making factors. We’ve also analyzed trends from the previous 2-3 months (October-December 2025) to highlight patterns that could impact your operations. Information is drawn from recent web sources and X discussions, focusing on actionable insights like regulatory changes, cost fluctuations, and market shifts.

Latest News (Past 7 Days)

The week leading up to Christmas has been relatively quiet for major announcements, but key discussions and updates revolve around upcoming regulatory changes and ongoing challenges in permitting and recovery efforts. Here’s a breakdown:

• Regulatory Changes Impacting Contracts and Cash Flow: A major focus this week is California’s new rules for private construction contracts, effective January 1, 2026. These cap retention at 5% of progress payments and the total contract price, with mandatory flow-down to subcontractors. Claims must include documentation, with owners required to respond within 30 days and pay undisputed amounts within 60 days. Disputes trigger mandatory mediation, and unpaid amounts accrue 2% monthly interest. Noncompliance could lead to work suspensions and attorneys’ fees for the prevailing party. This law, highlighted in recent X posts and articles, aims to speed up payments but may squeeze owners’ cash flow, potentially increasing litigation risks. For your company, this could mean better cash flow if you’re a contractor, but prepare for stricter dispute protocols to avoid delays.
• Permitting and Recovery Delays: X conversations emphasize slow permitting processes, with fire recovery in areas like Los Angeles still lagging—one user noted only 2 homes rebuilt a year after wildfires, with permits taking 79-131 days. Housing shortages are blamed on state and local restrictions, where remodels can take over a year for approval and 3 years to complete. Additionally, government regulations add $50,000-$150,000+ in costs per new home, including impact fees up to $23,000. Post-disaster rebuilding faces hurdles from underinsurance, inflation, and tariffs, potentially leading to a boom in vacant lot sales as mortgage moratoriums end.
• Labor and Material Costs: No major new data emerged this week, but echoes of mid-December reports point to a national workforce shortage of 439,000 in 2025, with higher material costs from tariffs, rising insurance, and labor expenses. In California, this aligns with broader concerns over skilled labor availability.
• Other Financial Factors: Discussions highlight pre-construction fees and permits reaching $250,000, adding upfront burdens. For decision-making, monitor tariff-driven cost increases (e.g., 25% on steel, 35% on Canadian lumber), which could raise project costs by 5-10%.

Key Trends (October-December 2025)

Drawing from data over the past 2-3 months, here’s a summary of patterns in permits, starts, costs, and labor to inform your financial planning:

• Building Permits and Construction Starts: Permits lagged 16% below historical averages through September-November 2025, signaling a slowdown. Single-family residential (SFR) starts in the six months ending August 2025 (overlapping into early trends) were down 13.3% year-over-year, totaling 28,633 units, with forecasts predicting a 6.6% drop for full-year 2025 due to high interest rates and trade uncertainties. Multi-family starts rose 16.7% in the same period to 23,325 units, but overall residential starts remain below peaks, with declines expected into 2026 from inflation, tight lending, and material tariffs. A six-year freeze on residential building codes started in October 2025, offering planning predictability but not reversing the downward trend.
• Material Cost Trends: The California Construction Cost Index (CCCI) showed a downward trajectory: 10,418 in October, 10,293 in November (-1.2%), and 10,258 in December (-0.3%), indicating stabilizing or easing costs after earlier volatility. Nationally, ENR indices rose 3.4-3.9% year-over-year ending November, with materials up 2% quarterly, driven by tariffs on metals (copper up 30-40% YTD) and lumber. However, low demand from slowed housing starts (1.35 million nationally in September) has mitigated increases, with concrete and PVC prices flattening. In California, tariff pressures and supply chain friction persist, reshaping the landscape toward industrial and multifamily projects.
• Labor Cost Trends: Craft labor escalation is estimated at 2.5-3% annually, with MEP trades at 4.2% over 10 years. U.S. construction unemployment fell to 4.1% in October from 4.3% in July, with 58,000 jobs added year-over-year, but a potential 15-23% workforce impact from deportations could worsen the 450,000-worker shortfall. Wages are growing above normal, intensifying competition for skilled workers and potentially delaying projects. Direct labor costs are a top concern for 62% of firms in outlook surveys.
• Overall Market Shifts: Total spending on building products is projected to grow 23% from $450B in 2024 to $556B by 2029. In California, Los Angeles wildfires have destroyed over 12,000 homes, with $150B in damages, likely straining local supply chains. San Francisco sees slowed private sectors like tech, shifting to public works and healthcare. Trends point to cautious capital, higher costs from tariffs (up to 30% overruns from delays), and a focus on multifamily amid housing needs.

Implications for Running Your Construction Company

• Financial Decisions: With costs stabilizing but tariffs looming, budget 5-10% buffers for materials in 2026 bids. The retention cap could improve cash flow—review contracts now to comply and avoid voids. Labor shortages suggest investing in retention or training; expect wage pressures.
• Risk Management: Slow permits (e.g., 79+ days) and disaster recovery delays mean prioritizing insured projects and contingency planning. Multifamily may offer growth amid SFR declines.
• Outlook: Short-term downward cost trends are positive, but 2025 forecasts indicate subdued starts. Position for post-2028 recovery by focusing on efficient, compliant operations.

Stay informed, and happy holidays! For real-time updates, consider monitoring sources like the DGS CCCI or ABC reports.

Sources

This newsletter aggregates data from Grok’s web lookups and X searches. Key references include:

• Associated Builders and Contractors (ABC) releases.
• California Department of General Services (DGS) CCCI.
• firsttuesday Journal construction trends.
• Skanska Fall 2025 Market Trends Report.
• JD Supra legal updates.
• X posts from users like @theregistrysf, @LegalNews, and @Hjon66