2026 U.S. Construction Cost Outlook

As 2026 begins, U.S. construction pricing remains defined by persistence rather than resolution. Tariffs, labor shortages, elevated interest rates, and reconfigured supply chains continue to exert upward pressure on costs, even as near-term escalation has moderated from earlier expectations. For owners, lenders, and contractors, the central issue is no longer whether costs will rise, but how unevenly and unpredictably those increases will appear across markets, trades, and material categories.

2025 in Review: Volatility Becomes Structural (no pun intended)
Describing 2025 as a year of “uncertainty” understates the volatility experienced by the construction industry. Early policy actions introduced significant tariff increases on steel, aluminum, wood, and derivative products, while frequent revisions complicated pricing assumptions and procurement strategies. For lenders and developers, the challenge was not tariffs alone, but their instability. Rapid changes strained underwriting models, contingency planning, and buyout timing.

Despite these challenges, the industry adapted. Earlier procurement, increased scrutiny of domestic versus imported materials, and tighter coordination among project teams helped stabilize many projects. By year’s end, construction activity remained resilient, though sustained by discipline rather than favorable conditions.

Tariffs and Material Costs
Construction remains one of the U.S. industries most exposed to trade policy. Many imported construction materials serve as raw inputs for domestically manufactured products, amplifying tariff impacts. A June 2025 Oxford Economics study estimated the effective tariff rate on U.S. construction imports at 27.7 percent. However, subsequent research by Harvard and the University of Chicago found that realized tariff costs paid by importers were closer to 14.1 percent, reflecting shipment timing, exemptions, United States-Mexico-Canada Agreement utilization, and uneven enforcement.

While these factors softened short-term impacts, pricing pressure remains embedded. China’s share of U.S. goods imports fell sharply between 2017 and 2025, while alternative sourcing from countries such as India and Vietnam increased. According to Harvard Business School research, tariffs have pushed imported goods pricing up roughly twice as fast as domestic products.

JLL reports that material prices in 2025 averaged approximately 4.2 percent above 2024 levels. Longer-term tariff impacts are expected to range from 5 to 25 percent depending on material type, with aggregate construction costs estimated to rise roughly 8 percent under current policy conditions.

Labor: The Binding Constraint
Labor remains the industry’s most acute structural challenge. Approximately 439,000 additional workers were needed in 2025, with nearly 500,000 required in 2026 to meet projected demand. About 94 percent of contractors report difficulty filling open positions, contributing to schedule risk, selective bidding, and continued wage escalation.

Demographics further intensify the issue. Nearly 40 percent of skilled construction workers are over age 45, accelerating retirement risk and institutional knowledge loss. Skilled trades, superintendents, and project managers continue to command premium compensation, making workforce availability a decisive factor in project feasibility.

Interest Rates and Inflation
According to Engineering News-Record and Associated Builders and Contractors, modest growth is expected in 2026, constrained by persistent inflation and elevated interest rates. Since early 2020, construction input prices have increased more than 43 percent, according to the U.S. Bureau of Labor Statistics. Fabricated structural metal products rose over 63 percent during that period, with steel and nonferrous metals also posting significant gains.

These increases are particularly impactful in material-intensive sectors such as data centers, where cost sensitivity is high and project pipelines remain strong.

2026 Cost Outlook at a Glance
Looking ahead, the industry should plan for persistence rather than reversal. Tariffs are expected to remain near current levels throughout 2026, absent extraordinary policy changes.

Key expectations include:

• Baseline total project cost escalation of four to six percent;
• Elevated volatility by market, material, and project type;
• Tariff-driven risk scenarios producing seven to ten percent escalation;
• Continued labor shortages requiring approximately 499,000 new workers;
• Core inflation near 2.4 percent, with construction inputs remaining structurally elevated;
• Potential geo political impacts from Venezuela including oil and other energy pricing.

Conclusion
The defining feature of the 2026 construction cost environment is unevenness. Cost pressures will vary widely by geography, sector, and material mix. Projects that succeed will be those that pair realistic budgeting with early procurement, disciplined contingencies, and close coordination among owners, lenders, and contractors. Volatility is no longer an anomaly. It is the baseline.