It’s no secret that construction costs have continued to tick upward over the past several years. Additionally, ongoing news of tariffs and possible inflation increases has some concerned about the expenses involved in building and/or rehabbing.
According to a recent Urban Land article, “Economic Snapshot: 2026 Construction Costs Outlook,” experts shared their varied views on material and labor costs.
One theme was that construction costs are likely to remain flat in the coming year. Ken Simonson, with The Associated General Contractors of America, told Urban Land that contractors have “more subdued expectations for growth in 2026 than they did a year ago,” possibly leading to little pressure on material costs.
Brian Bailey with Trimont echoed the sentiment, pointing out that less investment in residential structures means “a continuing downward trend in new construction activity across both commercial and residential real estate.”
On the other hand, tariffs remain an unknown. “Materials that are imported or compete with imports will experience outsized cost increases,” Simonson pointed out.
Then, there are the capital costs. According to Beacon Economics’ Christopher Thornberg, these should be as much of a concern as input costs. He cited the interaction between the stock market bubble and the federal deficit. To date, the deficit hasn’t widened the 10-year Treasury yield because of foreign capital inflows into the U.S.
The problem is that capital flowing from abroad can return just as quickly to its source, as happened in the run-up to the Great Financial Crisis. “Back then, money was pouring in to grab asset-backed securities tied to residential housing markets,” he said. These days, the focus is on AI-backed equities and the massive public deficit.
When money starts backing off as returns dwindle, the situation could lead to higher interest rates again, which would “sharply impact valuations and cause a sharp decline in demand for new development,” Thornberg noted.
The post Construction Cost Outlook Suggests a Flat-to-Slow Scenario appeared first on Connect CRE.
