Homebuilders Face Rising Costs Amid Labor Shortages and Tariffs

The construction industry is grappling with significant challenges as it approaches 2026. A persistent labor shortage and tariffs on building materials are placing substantial pressure on homebuilders across the United States.

Labor Shortages Impacting Homebuilding

According to Danushka Nanayakkara, assistant vice president for forecasting and analysis at the National Association of Home Builders, the workforce issues have persisted since the Great Recession. During that period, approximately a million construction jobs were lost.

• Many young people are not pursuing trades, leading to an aging workforce.
• The participation of women in construction trades remains low.
• Immigrants represent about 30% of the construction labor force, and immigration policies are poised to impact labor availability.

Rising Costs Due to Tariffs

Tariffs have significantly increased homebuilding costs. Builders reported that tariffs have added around $10,000 to the expenses of constructing a home. Key figures include:

• Lumber prices have surged by 15% compared to last year.
• Approximately 30% of U.S. residential lumber comes from Canada, now facing a 45% tariff.
• The U.S. imported $11.2 billion in residential building materials last year, predominantly from China and Mexico.

Impact of High Interest Rates

Another complicating factor is the rise in interest rates. Loan rates have increased from 5%-6% to as high as 8%-10%. This growth has placed additional strain on smaller builders, compounding the industry’s existing challenges.

Regulatory Costs and Housing Projections

Regulatory costs for homebuilders are estimated at $94,000 per home, making up roughly a quarter of total prices. There is a strong call for deregulation to enhance affordability in housing.

In terms of single-family home construction, projections indicate a decline of 7% this year, following a strong performance that saw over 1 million units in 2024. Current estimates suggest:

• About 947,000 single-family housing starts are anticipated this year.
• Forecasts show slight increases to 951,000 units in 2026 and 982,000 units in 2027.
• Single-family permits are down nearly 5% statewide, with a decrease of about 3% in Baton Rouge.

Trends in Multifamily Housing

Conversely, the multifamily segment has notably thrived since the end of the Great Recession. The market saw extensive household formations, primarily due to the unaffordability of single-family homes. Key highlights include:

• More than half a million multifamily units were built in 2022, marking the best year for this sector since the 1980s.
• Expectations for this year predict the construction of roughly 410,000 multifamily units, a 15% increase from 355,000 in 2024.

As the construction industry navigates these challenges, the path forward will require innovation and strategic adjustments to labor and pricing models, ensuring continued progress against these rising costs.