The cost of building in the U.S. is climbing and construction industry leaders warn global tension and instability — particularly the ongoing conflict involving Iran — is poised to push prices even higher, which will deepen challenges for contractors, developers and homebuyers alike.
New data shows construction input costs have surged more than 40 per cent since early 2020, with a further 6.2-per-cent annual increase recorded heading into 2026. The latest spike is being driven by sharp increases in key materials such as aluminum, steel and copper, along with volatile diesel fuel prices – inputs that underpin nearly every construction project.
According to the Associated General Contractors (AGC) of America, price pressures intensified even before geopolitical tensions escalated.
“Major increases in the prices for diesel fuel and key metals occurred before the start of the Iran war,” said Ken Simonson, chief economist at the AGC. “The disruption of oil, natural gas, and aluminum supplies from the Middle East is pushing up construction costs further and causing owners to delay projects.”
Over the past year, the producer price index for aluminum mill shapes has jumped by more than 39 per cent, while steel mill products are up nearly 21 per cent. Copper and brass mill shapes have climbed more than 15 per cent. At the same time, diesel fuel prices surged more than 20 per cent in a single month earlier this year, illustrating how quickly energy costs can ripple through supply chains.
The increases are being compounded by tariffs on imported materials, which have raised costs for steel, aluminum and copper products while allowing domestic producers to push through higher prices. The producer price index for materials and services used in nonresidential construction rose 0.1 per cent from January and 3.1 per cent from February 2025.
Labor shortages are adding another layer of strain, with wages for skilled construction workers continuing to rise at roughly a four-per-cent per cent annual pace.
Input costs are now rising faster than bid prices, squeezing already thin profit margins and forcing difficult decisions across the industry.
“There is a limit to how many price increases the market can absorb before owners put projects on hold,” AGC chief executive officer Jeffrey Shoaf explained in a statement accompanying the latest data.
U.S. construction spending slipped modestly at the start of 2026, with declines in both residential and nonresidential activity.
Private construction spending fell 0.6 per cent in January, while residential construction dropped 0.8 per cent, reflecting growing caution among developers.
At the same time, construction payrolls declined by 11,000 jobs in February.
“Contractors may be more reluctant to add workers amid uncertainty about how much they will pay for construction materials and demand for certain types of construction projects,” said Macrina Wilkins, director of market insights at the AGC.
The recent pullback in construction employment suggests firms may be hitting pause as they wait for clearer signals on pricing, federal infrastructure investment and the broader economic outlook.
For example, Freeport LNG CEO Michael Smith warned recently the Iran war could delay new LNG projects slated for development in the U.S. With costs escalating, he said Freeport would not proceed with its proposed fourth liquefaction train unless there is stability in liquefaction fees, which are charged by LNG developers to convert natural gas into a liquid for exports
Executives across the energy and manufacturing sectors warn disruptions tied to the Iran conflict – particularly constraints on oil, gas and petrochemical flows – could prolong cost pressures for months. With key shipping routes affected, the availability of materials critical to construction could remain constrained well into the year.
For homebuilders, the shifting landscape is forcing a strategic pivot. Rather than simply passing along higher costs, many are adapting their offerings to keep buyers engaged in an increasingly unaffordable market.
Builders are trimming home sizes, redesigning layouts and offering a wider range of incentives. Industry data shows 64 per cent of builders are now providing sales incentives, while more than a third have cut prices. New homes are increasingly being priced at or below existing homes, a notable reversal from historical norms.
Developers are also emphasizing flexibility and functionality, adding features such as multipurpose rooms, electric vehicle charging stations and expanded outdoor living spaces to attract cost-conscious buyers.
There are glimmers of hope, though.
Builder sentiment ticked up slightly in March, marking a modest improvement after months of pessimism. Confidence in current sales conditions, future expectations and buyer traffic all posted small gains, according to recent data from the National Association of Home Builders (NAHB).
Builder confidence in the market for newly built single-family homes rose one point to 38 in March, following a revised upward one-point revision in February.
“Affordability for buyers and builders remains a top concern,” NAHB chairman Bill Owens said in a statement.
“Many buyers remain on the fence waiting for lower interest rates and due to economic uncertainty.”
