Minnesota’s construction slows while pessimism grows

The Federal Reserve Bank of Minneapolis recently surveyed construction firms in the six states it covers, which include Minnesota and North Dakota.

More than half the survey respondents were from the Twin Cities, and overall, the construction firms expressed growing pessimism.

“Uncertainty has lingered,” said Erick Garcia Luna, the regional outreach director at the Minneapolis Fed. “There’s been a net decline in activity. Residential and commercial construction were hurt the most, according to our respondents.”

More than half of respondents to the latest construction survey reported a drop in active projects from November 2025 to April of this year, compared with the same period 12 months prior.

Part of the problem is that the cost of materials remains high, Garcia Luna said. Inflation and tariffs contribute to those high expenses, and now oil price changes stemming from conflicts in the Middle East are driving up the costs of other goods.

“Not only on fuel but also on materials such as PVC and other plastic-based materials that are used in construction,” Garcia Luna said.

Those costs make houses more expensive to build, and consumers may not be ready to accept higher housing prices.

The growing cost of building homes

First-time homebuyers are among those consumers who are most sensitive to pricing; they typically want to buy affordable, already-built homes, but such homes are in short supply.

“Realtors will tell you things have gotten a little bit better earlier this year, but the market for existing homes in [an affordable] price range for starter homes is very tight,” said Steve Gottwalt, government affairs consultant for the Central Minnesota Builders Association.

Part of that is because many people who’ve already settled down in their homes have favorable mortgage rates, Gottwalt said. That means they’ll be less likely to risk paying higher prices for a new house.

That leaves first-time homebuyers with another option: buying a newly built home.

That’s less common in Minnesota, said Gottwalt, partly because there aren’t enough starter homes being built.

But in North Dakota, some cities like Fargo offer a tax exemption that incentivizes first-time homebuyers to buy newly built homes rather than existing ones.

Nevertheless, Brock Goossens, co-owner of Hawthorne Custom Homes in Fargo, said that with rising construction costs, those houses are more expensive to get.

“We’re seeing affordability for that first-time home buyer still be a stretch,” Goossens said.

His clients can typically afford a more expensive house, but he said even they are proceeding with caution as of late.

“When you get to that top end, they still want to spend money, still know they’re going to spend money,” Goossens said. “Maybe they don’t have a budget on it, but they’re watching their dollars and their cents more because (of) whatever’s going on in the world. And it is affecting what they ultimately put in.”

Goossens, who is also president-elect of the Building Industry Association of the Red River Valley, said that in the first quarter of the year, construction in the Fargo-Moorhead region had a 11 percent decline in permits.

“It’s a slower start than what we’ve seen years past,” Goossens said. “But we’re amping up, we’re seeing larger projects launch. So, meaning that maybe there are fewer new project starts, but we’re seeing larger project starts.”

Worker availability

Another factor causing hardship for construction companies is access to labor.

“Labor availability continues to be the story of the region,” Erick Garcia Luna of the Minneapolis Fed said. “Companies are just struggling to secure the labor that they need in order to remain competitive.”

According to the Minneapolis Fed’s latest construction survey, 10 percent of respondents reported that immigration enforcement actions earlier this year affected their labor availability.

In Minnesota, respondents flagged issues around the Paid Family Leave program. It allows workers to take paid time off for their own serious health condition or to care for a family member.

“The paid family leave was mentioned a few times by respondents in that it was making scheduling difficult for some companies,” Garcia Luna said.

That said, about 30 percent of respondents did say they increased headcount during the period in question, which, Garcia Luna said, “is not a bad number.”