Expect Construction Cost Price Increases
Expect Construction Cost Price Increases
The AIA has begun issuing a weekly email series titled "Dear Architect" wherein their staff respond to member questions related to the industry. In the latest issue they tackle the issue of price increases on materials as a direct result of Trump administration tariffs. The full effect of the tariffs will naturally depend on when the tariffs are applied, to whom, and how much they will be. All of which is still up in the air. However, in their current form the AIA expects that they will represent approximately a 10-15% increase in the price of construction for steel and aluminum items, which may have an overall impact on the cost of construction of approximately 2%. This would of course be on top of general market pressures that lead to annual inflation rates for construction that regularly outpace general market inflation leading to even greater inflationary pressure than would otherwise be experienced.
The discussion on tariffs relates to materials. The other side of construction is labor. Given the Administration’s goal of deporting 20 million people from the country we should also expect price increases on this side of the equation. Many of these people work in the construction industry: painters, carpenters, drywallers, concrete workers, and general laborers will all see a constriction in their labor force. According to a study by Nicole Svajlenka, as referenced in the October 2024 University of Utah Study: “Cracking Down, Pricing Up: Housing Supply in the Wake of Mass Deportation” an estimated 25% of the construction labor force is undocumented. As these people are removed from the labor force we can expect price increases as competition amongst the remaining providers decreases. In their conclusion they state: "...when undocumented workers are deported, domestic labor only partially fills vacated construction jobs; and an apparent complementarity between immigrant and domestic labor leads to net job losses for US-born workers, (ii) residential construction output is highly sensitive to these declines in labor supply, (iii) the resultant reduction in homebuilding leads to higher home prices..."
The two halves of construction are materials and labor. Both will be experiencing upwards price pressure in the coming years. The impacts of these policies are likely to hit different localities across the nation by varying amounts that would be difficult to quantify without intensive study, but I would caution all my partners throughout the industry to work with their clients to purchase any known materials needed and stockpile them for future use to limit the impact of price increases on projects currently in design and to put subcontractors under contract to lock in pricing for those same projects.