While supply chains have recovered, material costs remain 40% higher than before the pandemic, with new tariffs threatening to push prices even higher.

Since 2020, events are often marked as "pre-pandemic" or "post-pandemic," a distinction that's particularly relevant in the construction industry.

Contractors initially hoped that construction prices would return to pre-pandemic levels. However, five years after COVID-19’s onset, costs have not fallen back to where they were. In fact, construction professionals are bracing for another surge in material prices, driven by ongoing and anticipated tariffs.

As March 11, 2020, marked the day the World Health Organization declared COVID a global pandemic, the effects continue to reverberate in the building sector. The U.S. declared a national emergency two days later on March 13, with states soon issuing lockdown orders.

“We thought the shutdown would only last a few months. When people returned to in-person work, we thought it would take a few months for manufacturers to catch up and clear their backlogs,” said Les Hiscoe, CEO of Shawmut Design and Construction in Boston. “We weren’t prepared for the long-term disruption and the reduction in the labor force, which has had a lasting impact on the supply chain.”

Hiscoe's experience wasn't unique. After materials like iron, steel, brick, and switchgear saw prices surge in 2020 and 2021—peaking in June 2022 at 46.4% above February 2020 levels—many contractors expected prices to gradually return to pre-pandemic levels, said Sharon Wilson Géno, president of the National Multifamily Housing Council, during a webinar earlier this year.

However, the anticipated price drop never materialized.

“There was an expectation post-COVID that construction costs would return to prior levels, but that hasn’t really happened,” Wilson Géno said. “While we haven’t seen the volatility in construction pricing that we did during COVID, prices have mostly flattened, but at a much higher level.”

Construction input prices are now about 40.5% higher than in February 2020, according to the Producer Price Index. Most of the increase occurred shortly after the pandemic began, and since 2022, costs have stayed relatively stable at these elevated levels.

“Supply chain conditions have improved, with many suppliers reporting better availability and shorter wait times,” said Rob Mineo, managing director at FMI Capital Advisors, a North Carolina-based investment firm. “However, while the situation has normalized somewhat, there’s no clear indication that things have fully returned to pre-pandemic conditions. Many companies still place orders well in advance to guard against potential future disruptions.”

Supply Chain Shifts

Before the pandemic, the construction industry was highly dependent on global manufacturers for materials, according to Dave Steffenhagen, project executive at McHugh Construction in Chicago. However, due to the pandemic’s disruptions, companies like McHugh have increasingly turned to domestic and North American suppliers.

“No one knew how long the material supply chain delays would last. It was an uncertain time,” Steffenhagen said. “Now, we can offer clients multiple recommendations for equivalent alternatives to overseas-sourced products.”

Federal spending has also helped stabilize the supply chain, Mineo said. Although prices were rising rapidly at first, they eventually stabilized, with lead times for materials like asphalt improving after 2022, sparking hope that construction costs would gradually decrease.

However, that optimism has faded as construction prices plateaued in 2023 and 2024, showing no significant decrease. Now, in 2025, contractors are adjusting to the reality that prices are not just holding steady—they are climbing again.

The Impact of Tariffs

On March 4, President Donald Trump imposed a 25% tariff on goods from Mexico and most of Canada, alongside a 10% tariff on Chinese products. These tariffs were suspended by the Trump administration on March 6, but on March 12—almost five years to the day since COVID was declared a pandemic—the administration plans to implement a 25% tariff on steel and aluminum imports from all countries, as well as a 50% tariff on Canadian metals.

These tariff announcements, even before becoming fully enforced, have already caused price surges. Contractors rushed to purchase materials before potential new deadlines.

“These new tariffs will definitely cause some damage,” said Mark Zandi, chief economist at Moody’s Analytics, during the Marcus & Millichap event.

The U.S. construction sector relies heavily on imports for materials like lumber, steel, and cement, making these goods especially vulnerable to price increases, said Brandon Michalski, a construction economist at MOCA Systems in Boston. He predicts a 2.4% year-over-year cost increase for construction materials in 2025, following a slight decline in 2024.

“In other words, while nearshoring has given contractors a bit more stability since COVID, U.S. builders are still far from material independence,” Michalski said. “There’s risk in this outlook, particularly with tariffs potentially raising prices for materials like steel, lumber, and cement.”

The impact could be most severe for cement and aggregates, Mineo added.

“U.S. cement consumption has outpaced domestic production in recent years, leading to more imports. With domestic production at capacity, higher import costs will inevitably raise domestic prices,” Mineo said.

For aggregates, prices are expected to rise steadily, but not in the dramatic way cement prices might increase, he noted. While most aggregate production in the U.S. is domestic, regions relying on imports from Canada and Mexico will see price hikes.

Contractor Profit Margins Tighten

The construction industry faces shrinking profit margins, according to a survey by Associated Builders and Contractors. Higher material costs, coupled with ongoing labor shortages, are placing additional pressure on budgets.

“Barring an unexpected event, it’s unlikely that construction costs will see a significant drop in 2025,” said Michalski.

Still, work continues in certain sectors.

The Project Stress Index, which tracks project delays and cancellations, along with data on construction starts, suggests that some segments of the industry are holding steady despite rising costs. Developers are finding ways to proceed with projects, even if they come with higher expenses.

“There is some anecdotal evidence that some deals are starting to move forward,” Wilson Géno said. “Those deals have just adapted to the new environment, realizing that demand continues and that they need to proceed at higher costs.”

Michalski echoed this sentiment, adding that while some projects may be delayed or scaled back, most developments are adjusting to a new, permanently higher cost environment. Data centers, for example, accounted for over 75% of the monthly gain in construction spending in January, according to an Associated Builders and Contractors analysis of U.S. Census Bureau data.

“Although some projects may be delayed or canceled, most will continue as companies adjust through value engineering and strategic planning,” Michalski said. “The industry remains resilient despite these challenges.”

As the construction industry enters its fifth year since the onset of lockdowns and material shortages, builders are preparing for more disruption.

“Inventory management has permanently changed—we’re now operating in a new normal,” Hiscoe said. “Project set-up times are still much longer than before the pandemic, so partnerships and early collaboration with clients, architects, and engineers are crucial.”

Originally reported by Sebastian Obando in Construction Dive.