Will Construction Costs Go Down in 2025?

Optimism in the construction industry soared after the Federal Reserve rate cuts in late 2024. However, with future reductions now indefinitely on hold, caution is creeping back in.

So, will construction costs go down in 2025? The answer is most likely no, and there are three key reasons why:

Tariffs are likely to drive a surge in material costs.
Inflation and high interest rates have left a lasting economic impact.
The cost of labor shortages will continue to increase.

We’ll explore the data behind each of these cost drivers and how you can manage your expenses this year.

The Tariff Effect

Trade tensions are escalating in early 2025 as the Trump administration rolls out a wave of new tariffs. Global steel and aluminum imports are now subject to a 25% tariff, while a 10% tariff will be imposed on all Chinese goods. While currently on hold, a 25% tariff on Canadian and Mexican imports is expected to be reinstated in March.

How exactly will these tariffs impact construction costs? Consider these statistics from the National Association of Home Builders (NAHB):

7% of residential construction materials are imported.
Nearly 70% of sawmill and wood imports originate from Canada.
71% of lime and gypsum imports (often used for drywall) come from Mexico.

Across construction sectors, 32% of building materials are imported, often from China and Canada. Economic blows are certain to lead foreign partners to bump up their prices. In fact, NAHB projects tariffs to increase imported construction material costs by $3-4 billion.

How Construction Leaders Can Respond

Early procurement and bulk purchasing strategies can help mitigate these tariff-driven increases. Construction leaders should consider:

Developing relationships with multiple suppliers, including domestic and international companies, to ensure competitive pricing.
Negotiating price escalation clauses for new or renewing construction contracts.
Identifying cost-effective alternatives for essential materials.

The Echoes of Inflation

While headline inflation has cooled, the construction industry continues to grapple with its aftermath. The U.S. inflation rate rose slightly in January 2025 to 3%—which, while better than 2021-2023 averages, remains elevated compared to the past decade.

Annual material price growth did slow down in 2023 and 2024. However, since the construction sector is still recovering from challenges like supply chain issues, geopolitical crises, and heightened demand, tariffs could be enough to spark cost increases again.

What’s more, the pause on Fed rate cuts will keep borrowing costs high—both for clients and construction leaders in need of financing for large-scale expenses. Economists report it could take up another 1.25-1.5% of cuts before construction delays end and industry growth ensues.

How Construction Leaders Can Respond

With elevated costs likely to persist through much of 2025, construction leaders need to optimize their financial strategies. Here are key approaches to consider:

Identify and emphasize a clear value proposition when sending proposals, rather than rushing to offer the lowest bidding price. Staying competitive shouldn’t stunt your profitability.
Secure materials in bulk when prices are favorable, proactively identifying storage solutions for additional inventory.
Implement rigorous cash flow management systems to minimize borrowing needs, leveraging your construction management software.
Explore alternative financing options like equipment leasing or supplier financing programs when large expenses are necessary.

The Persistent Labor Challenge

The numbers paint a stark picture of the construction industry's workforce challenges: 94% of contractors are struggling to hire. 439,000 new workers are needed to balance supply and demand. By 2032, annual hiring for skilled trades roles will be over 20 times greater than net new jobs due to rising churn.

The cost of qualified labor is mirroring demand in markets like Texas, where construction project growth continues to soar. Our 2025 Skilled Trades Wage Guide documented the rise of all local trade wages above $20 per hour. For especially hard-to-fill roles, like pipefitter and journeyman electrician, average wage ranges exceed $40 per hour on the high end.

To keep projects on time amid the growing construction skills gap, managers will need to continue offering competitive compensation, which is increasing each year.

How Construction Leaders Can Respond

With skilled trades shortages likely to intensify, companies need to think beyond traditional approaches to construction recruitment. Here are key strategies you can use to manage labor costs while winning top talent:

Partner with an experienced construction staffing firm to streamline recruiting costs and access pre-vetted skilled trades workers on demand.
Develop trade school partnerships, apprenticeship programs, and upskilling initiatives to build your own talent pipeline for hard-to-fill positions.
Implement productivity-enhancing construction technologies to maximize output from your existing workforce.
Structure project schedules to optimize crew utilization and minimize overtime costs.

Will Construction Costs Go Down in 2025?

Construction costs are unlikely to drop in 2025. However, proactive cost management, strategic planning, and outsourced staffing solutions can mitigate the impact of growing cost pressures.

Skinner, a trusted skilled trades staffing firm serving North Texas for over 80 years, is prepared to help you navigate your workforce demands now and in the future. Our experts leverage our network of over 10,000 tradespeople—including electrical, plumbing, and HVAC pros—to quickly connect you to qualified workers when you need them.

Need managed payroll solutions? We can further streamline your contracting costs by taking care of payroll processing and reporting requirements—reducing compliance risks along the way.