Tariffs And Historic Construction Costs

Housing construction costs are hitting historic highs and it's impacting your bottom line!

Key Points

Construction Costs Surge: Construction now makes up 64.4% of a home's sale price, up almost 4% since 2022. Meanwhile, the finished lot is only 13.7% of the price—a 4-point drop since last year.

Profit Margins Remain Flat: Despite higher costs, home builders are only making an 11% profit, barely above last year’s margins.

Mixed Construction Activity:

• Overall Housing: Up 15.8% in December, but down 3.9% year over year
• Single-Family: Starts up 6.5%, completions up 2.2%.
• Multi-Family: Starts down 25%, completions up 35%—a sign that inventory is cooling off after years of excess.

Tariffs: Over 70% of softwood lumber and material used for drywall come from Canada and Mexico.

What It Means for You

For Multi-Family Investors: With new starts plummeting and existing projects still completing, supply is tightening. Expect stronger rent growth as inventory gets absorbed by demand—especially towards the end of this year and into 2026.

For Single-Family Investors: Rising construction costs mean margins are squeezed. Only properties with strong fundamentals and fixed or long-term debt are likely to weather this storm.

Everyone: Higher construction costs due to inflation and tariffs will create additional challenges for homebuilders and families seeking affordable, quality housing.

Bottom Line

Your strategy matters.

If your property is performing well and you have fixed-rate debt, you may benefit from the slower pace of new construction.

But if you’re flipping houses, manage your costs well and budget for contingencies to protect your margin.

Stay sharp and adapt your strategy to the shifting landscape.