Construction Cost Growth 'Far Too Hot' As Tariffs Begin To Bite

U.S. construction costs notched higher in February, and a leading industry group is warning that the price hikes are likely to continue. 

“Nonresidential input prices increased at a rapid pace in February and have risen at a far-too-hot 9.0% annualized rate through the first two months of 2025,” Associated Builders and Contractors Chief Economist Anirban Basu said in a statement.

Construction input prices rose 0.6% in February for both residential and nonresidential development, according to an ABC analysis of census data. Overall construction prices are 0.3% higher than a year ago, but the pace of price hikes is accelerating.

Iron, steel, steel mill products and softwood lumber prices all increased sharply in February as President Donald Trump’s new tariff regime gives domestic producers more pricing power, Basu said. 

While price growth has picked up this year, the total cost of inputs is still less than 1% higher than a year ago.

“That will likely change in the coming months as tariffs continue to put upward pressure on prices,” Basu said. 

Members of the construction industry group are still optimistic about their profit margins this year, ABC found in a survey, but 23% expect their profitability to decline in the next six months.  

The Trump administration’s on-again, off-again tariff policy has injected profound uncertainty into the market as commercial real estate industry professionals try to predict where interest rates, construction costs, rents and capitalization rates are headed. 

Trump’s trade policy has led to a weekslong stock sell-off that has dragged down all the major indexes, including the S&P 500, which officially slid into correction territory Thursday. 

Iron and steel prices ticked up 3.9% in February alone, while softwood lumber rose 2.8% and steel mill products gained 2.7%. Compared to 2020, iron and steel is 43% more expensive, while the price of lumber is up 19.6%.

Cost savings were found in natural gas, which slid 5.9% in February; steel bars and plates, down 4.4%; and unprocessed energy materials, which got 3.1% cheaper over the month. 

The Trump administration’s tariff policies have been a moving target, with planned 25% tariffs on Mexico and Canada imposed and then rolled back, only to be reintroduced.

Canada’s steel industry has been a specific target, and the U.S. has imposed a 25% tariff on Canadian steel imports that was set to double this week in response to reciprocal tariffs on Canadian natural gas exports. 

The administration backed off the additional 25% tariff after Canada agreed not to implement the energy tariffs. 

The White House faces heavy criticism, including from the business community and conservatives, about the tariffs, which are widely expected to be passed on to American consumers in the form of increased prices. 

“We said from the beginning that this North American trade war is the dumbest in history, and we were being kind,” The Wall Street Journal’s editorial board wrote this week.