Construction Costs and Materials Supply Tighten
Key Questions
What is driving the structural rise in construction costs?
JLL reports costs escalating above 5% YoY and potentially reaching 8% by late 2026 due to 50% tariffs on steel, aluminum, and copper, plus labor shortages in 61% of metros.
How are sawmill capacity and lumber prices changing?
Sawmill output has declined for two quarters with capacity down 6% YoY, pushing utilization to 71.8%, while lumber prices rose 6.1% quarter-over-quarter.
Which sectors face the highest construction cost increases?
Currie & Brown warns data centers could see 8.5% cost rises and hotels 8.2% due to oil price volatility and material supply constraints.
What happens to material costs if housing demand rebounds?
Tighter sawmill capacity could amplify material cost spikes, further pressuring builder margins if demand picks up.
How are tariffs and labor shortages affecting the supply chain?
Tariffs combined with labor shortages in most metros and geopolitical disruptions are creating sustained upward pressure on construction costs above historical norms.
JLL mid-year update warns construction costs structurally escalating above 5% YoY, potentially 8% by late 2026 due to tariffs (50% on steel/aluminum/copper), labor shortages (61% of metros supply-constrained), and geopolitical disruptions. Sawmill output declining for two consecutive quarters with capacity down 6% YoY; utilization rate ticking up to 71.8% confirms capacity shrinking, not demand weakness. Lumber prices up 6.1% QoQ but still down YoY. Currie & Brown warns construction costs could rise 8.5% in data centers and 8.2% in hotels due to oil price volatility. If housing demand picks up, tighter sawmill capacity could amplify material cost spikes, further pressuring builder margins.