US construction costs are surging with input costs now more than 40% above early-2020 levels. The Iran conflict and accompanying supply chain disruption is intensifying existing pressures from tariffs and labour shortages. But it is hard to establish the consequences.
The producer price index for materials and services used in non-residential construction recorded its largest one-month increase in four years in March, driven by a near-record jump in the price of diesel fuel and ongoing increases in metals prices, according to analysis by AGC.
The Iran war has disrupted oil, gas and metals flows from the Middle East, pushing US diesel toward about $5.64 per gallon (around +55% year-on-year) and crude close to $100 per barrel, increasing transport and on-site fuel costs.
Before the conflict, diesel was already up roughly 20% in one month and key metals were climbing; the war has obviously added shipping bottlenecks in and around the Strait of Hormuz, and higher marine insurance.
This feeds through into nearly every CRE input, from petrochemical-based products such as PVC and roofing membranes (up around 20–33%) to cement and concrete, which are highly energy-intensive and sensitive to fuel and power price spikes.
Even before the conflict, 50% US tariffs on steel, aluminium, and copper had amplified global price jumps. AGC reported aluminium mill shapes up roughly 33% year-on-year, steel around 21%, and copper and brass about 16%. Labour adds another layer: skilled-worker wages are rising around 4% annually amid an estimated 499,000-worker shortfall, potentially squeezing contractor margins if bid prices lag input inflation.
But what are the consequences? Developers report three- to six-month project delays, more force-majeure/change-order claims, and 15–25% contingency buffers in bids. But the economic statistics are murkier. Although construction employment fell 11,000 in February, it promptly rebounded by 26,000 in March, to be up 57,000 year on the year. Private construction spending fell by 0.6%, and residential by 0.8%, in January, but we are awaiting a more recent number.
Although analysts fear some slowdown in construction activity, we await to see that actually feeding through in the numbers.
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