Construction costs are rising at their fastest annual pace in about four years, by the measures of three national builder and contractor groups. Prices for inputs to new nonresidential construction were 11.9% higher in September than a year earlier, according to an Associated General Contractors of America analysis of the Producer Price Index data the Bureau of Labor Statistics released Oct. 15 β what the association called the largest increase in four years.
Two other industry groups reading the same release reached similar conclusions. Associated Builders and Contractors measured overall construction input prices up 2.2% in September alone and 11.2% from a year earlier. On the housing side, the National Association of Home Builders calculated that prices for inputs to new residential construction rose 2.0% for the month and 10.3% over the year.
The three figures track different baskets of goods and services, but they point the same direction: fuel led the surge, metals are close behind, and the increases are now spreading into a wider set of materials and services.
Fuel and freight lead construction cost inflation
Energy accounts for the largest moves. The producer price index for diesel fuel, measured at the refinery or fuel terminal, rose 115.2% over the 12 months through September, according to AGC. Liquid asphalt rose 17.7%, and truck freight transportation rose 19.3% as carriers passed on their fuel costs.
ABC reported that crude petroleum prices rose 28.3% and unprocessed energy materials 22.2% in September, while natural gas rose 5.1% for the month. NAHB’s breakdown shows energy inputs to homebuilding up 13.0% in September and 64.1% from a year earlier, with diesel up 24.2% in the month and unleaded regular gasoline up 13.0% for the month and 66.1% for the year.
“Construction input prices have risen more than 11% over the past 12 months, the largest year-over-year increase in nearly four years,” said Anirban Basu, ABC’s chief economist. “While higher fuel prices brought about by the conflict in Iran have driven a substantial portion of the increase, prices for tariffed materials like iron, copper and other metal products continue to rise rapidly.”
Metals, and a steel supply problem
Metals prices have climbed steeply since tariffs of up to 50% were imposed in 2025, AGC said. Its analysis puts the 12-month increases at 25.2% for aluminum mill shapes, 27.6% for steel mill products and 30.0% for copper and brass mill shapes. Products that contain steel are following: precast concrete products, which have steel embedded in them, rose 10.5%.
AGC said availability has become as much of a problem as price. According to the association, contractors report that the firms producing beams and other steel shapes for building frames say their order books are full through spring 2027, that some contractors have been told they will receive only a small fraction of the beams they ordered, and that alternative suppliers are refusing orders from new customers.
“Construction firms are being hit by a double whammy of tariff- and war-induced materials cost increases as higher metals and fuel costs permeate an ever-wider range of prices,” said Ken Simonson, AGC’s chief economist. “Making matters worse, lead times for key steel components have lengthened, making it harder for contractors to keep projects on schedule.”
What it means for homebuilding
NAHB’s figures show the pressure reaching residential construction through services as well as goods. Prices of goods used in new home construction, including energy, rose 1.8% in September and 9.7% from a year earlier. Service inputs rose 2.2% for the month and 11.3% for the year, the largest annual increase since April 2022, when they rose 17.7%. Within services, trade services were up 14.0% and transportation and warehousing up 19.3% from a year earlier.
Excluding energy, building materials prices rose 0.4% in September and 5.5% from a year earlier β the highest annual rate since December 2022, when it reached 8.0%, according to NAHB. Among individual products, softwood veneer and plywood rose 2.7% for the month and 15.9% for the year, and particleboard and fiberboard rose 3.5% for the month and 7.8% for the year.
The broader index is moving too. Producer prices for final demand rose 1.3% in September after a 0.5% increase in August and were up 6.3% from a year earlier, NAHB said. RealtyWire has previously reported that NAHB data show small builders absorbing far larger material cost increases than big builders, so a broad-based rise of this size is likely to weigh most on smaller firms. That is our reading; the September data do not break costs out by builder size.
Absorbing the increases, for now
AGC officials said construction firms appear to be absorbing most of the cost increases, because demand for projects is relatively soft except for data centers. ABC’s Basu pointed to the margin squeeze already showing up in his group’s surveys: “In light of this precipitous and ongoing increase in materials prices, it is unsurprising that more than 1 in 4 ABC contractors expect their profit margins to contract over the next six months, according to ABC’s Construction Confidence Index.” That finding was part of ABC’s September survey, which RealtyWire covered when the group’s backlog indicator rose to 8.7 months.
AGC used the data to press Washington on two fronts: resolving the trade disputes behind many of the tariffs, and passing a new multi-year surface transportation bill that fully funds road, bridge and transit work. “Public policy uncertainty and instability impedes construction activity. Full stop,” said Jeffrey D. Shoaf, AGC’s chief executive officer. He added that “resolving trade disputes will ease the price uncertainty that slows private construction.”
The next read on whether higher costs are slowing building comes with the Census Bureau’s September housing starts and permits report, scheduled for Oct. 20. More construction and development coverage is in RealtyWire’s commercial real estate section.
