Construction material costs registered a modest 0.4 percent increase on the quarter in Q4 2024 following two consecutive quarterly contractions. Lumber was an outlier, surging by 4.4 percent on the quarter. This coincided with increased demand from homebuilders to cater for rebuilding and maintenance and repair needs following several natural disasters across America. As well, several sawmill closures in 2024 contributed to a constrained lumber supply.

Many steel items fell on the quarter, with rebar, steel pipe/tube and structural steel reducing by 1.2, 1.3 and 3.1 percent respectively in Q4 2024. Moderating shipping expenses, iron ore cost reductions and softening construction demand have alleviated pressures.

The overall material cost picture is likely to be redrawn from a new canvas, however. Recent tariffs imposed by Trump threaten to drive costs higher. Specifically, tariffs on steel and aluminum will raise costs for both raw and finished products, leaving contractors in the position to either absorb increases or pass them on to project owners.

A similar scenario occurred in 2018 under the Trump administration, where steel and aluminum tariffs of 25.0 and 10.0 percent, respectively, were placed on most countries - including Mexico and Canada. While a different period, with different market conditions, looking back at past performance can help shed some light onto what may transpire now.

Shortly after tariffs were announced in Q1 2018, all aluminum and steel products analyzed in Figure 7 increased notably. Speculation, forward purchases and stockpiling likely impacted costs. Costs escalated further for most indices once applied in Q2 2018 as ad valorem tax increases were realized and availability and choice were restricted. Many indices then experienced a sharp correction once tariffs were removed in Q2 2019. From announcement to repeal, the analyzed steel and aluminum material costs increased between 3.7 and 15.1 percent.

Materials are only one part of a unit rate; labor, machinery and equipment, margin and risk, etc. also need to be considered. Final demand pricing for nonresidential construction over the same period was steady, indicating that pass-through was minimal.

For the long term, the administration appears to want to incentivize domestic production, and at the very least, production outside of China. Additionally, the administration may also use tariffs to leverage new trade deals with other countries, as has happened with the previous round of tariffs. It remains uncertain, however, to what extent these outcomes will materialize into the supply chain.

While the impact is not known, and can be variable by project, the likely pathway for material costs is an increase and this can have ramifications for the construction industry. Increased costs can render projects unviable without redesign and act as an overall barrier for future sector growth. Tariffs could also cause potential supply chain disruptions and further extend lead times, prompting contractors to revise project schedules.