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Tariffs that doubled midyear, a renewed spike in steel prices and the ripple effects of the war with Iran are offsetting any broader cooling in materials, leaving developers and homebuilders with little relief heading into 2026.
The Building Cost Index, a measure of labor and materials prices from the Engineering News-Record, rose 4.2 percent year-over-year in 2025, while the trade publication’s Construction Cost Index grew by 3.6 percent. (Both indices include pricing for steel, lumber and cement for non-residential construction. The BCI incorporates skilled labor wages, while the CCI uses common labor wages.)
President Donald Trump’s tariffs, implemented last year, and geopolitical uncertainty has helped fuel the cost increases. The 25 percent tariffs on steel and aluminum were hiked to 50 percent mid-year, sending shockwaves through the supply chain. By year’s end, structural steel had surged by 11.9 percent, according to ENR.
The increases are continuing, but at a more moderate pace. For instance in February, materials for construction ticked up just 0.4 percent month over month. However, steel mill products climbed 3 percent during the same period, according to the Bureau of Labor Statistics.
Still, the war with Iran will likely compound these issues. The conflict has already driven up fuel prices, making the transport of materials to job sites more expensive, said Jesse Wade, director of tax and trade policy analysis at the National Association of Home Builders. Furthermore, the United Arab Emirates is one of the U.S.’s top sources of aluminum, raising the specter of a supply shortage.
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However, some materials saw their prices fall in February. For instance, paving materials and plastics for construction fell 0.5 percent and 0.2 percent month over month.
While volatile material prices often dominate headlines, the cost of human capital remains the primary driver of price increases. Labor accounts for 81 percent of the CCI and 66 percent for the BCI, but its increases in 2025 were less striking than that of certain materials like steel. Skilled and common labor wages climbed by 5.7 percent and 4 percent, respectively, over the past year, per ENR.
The industry’s reliance on foreign-born workers, who make up about one third of the construction workforce, has left it vulnerable to stricter immigration policies.
“Eliminating the supply of skilled labor is a challenge depending on how strict immigration remains or continues to be going forward,” Wade said.