Last year’s tariff price increases, in addition to energy spikes caused by the ongoing conflict in Iran, remain a cause for concern as the second quarter of the year draws to a close.
“The sense of optimism for 2026 has waned,” says Sarah Martin, associate director of forecasting at Dodge Construction Network. “Military actions in the Persian Gulf have limited upside risk potential. Rising material costs and renewed uncertainty around global supply chains are poised to weigh on construction activity in 2026, although project demand remains resilient.”
Michael Guckes, chief economist at ConstructConnect, shares a similar sentiment. “Tariffs have already put a considerable floor under construction inflation that has been rising steadily,” he says. “With the latest jump in energy prices not yet fully reflected in construction prices, it is reasonable to suspect that material prices will rise further in the second quarter and beyond if war and tensions in the Middle East continue.”
According to Dodge, total construction starts are up 5% through April, driven largely by utility work and ongoing data center construction. Housing starts fell 4% in the same period, due to an 11% drop in the single-family sector. “The rise in mortgage rates between January and April has continued to favor the price of first-time home buyers, exacerbating an already tight supply of affordable housing,” says Martin.
The decline in affordable single-family options has led to greater demand for multi-family homes, of which starts were up 8% through April. The largest multifamily buildings to break ground in April were the $850 million Gowanus Wharf 175 3rd Street mixed-use development in Brooklyn, New York; the $354 million Deerfield Episcopal Retirement Community III expansion project in Asheville, North Carolina; and the $303 million Archer Towers Mixed Use Development-Garage (Phase 2) project in Queens, NY
In the non-residential sector, starts increased by 19% in the first four months of the year. Martin attributes this largely to commercial starts, with office buildings and data centers up 61% year-to-date. “Data center construction continues to be a bright spot, with robust early activity coupled with outsized demand for AI and cloud infrastructure,” says Martin.
Steve Stouthamer, executive vice president of project planning at Skanska USA Building, notes that despite the “increased scrutiny” surrounding data center construction, “we have not seen these factors significantly alter the underlying demand that drives these projects.” He adds that, in the future, “investment driven by technology and infrastructure modernization [are expected] remain key market drivers, especially as demand for AI, data processing capability and advanced manufacturing continues to grow.”
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However, the sector has started to see longer planning phases. “It’s taking an average of 17 months for projects to become breakthrough in the first four months of the year, compared to 15 months in all of 2025,” says Martin. “Increasing constraints around skilled labor and energy availability, along with increasing resistance from local communities, appear to be contributing to the delay.”
Retail, hotel and parking lot starts also fared well through April, while warehouse starts fell 11%, according to Dodge. Within the institutional market, education and healthcare starts decreased at a rate of 5% and 22% respectively. “Reduced access to federal funding, tighter state and local budgets, and ongoing material and labor pressures are weighing heavily on publicly funded construction activity,” says Martin. The largest non-residential projects that broke ground in April were Phase 1 of the $5 billion Provident/PowerHouse Prairie Ridge data center in Midlothian, Texas; the $1.9 billion SK Hynix HBM Advanced Packaging & R&D Hub project in West Lafayette, Ind.; and the $1.3 billion Stargate Data Center Campus project in Saline Township, Michigan.
Nonbuilding starts rose 12% year-to-date, driven by a massive 79% increase in utility starts, according to data from Dodge. Other parts of the industry, however, have slowed as public funds allocated by the Biden administration are set to expire in September. Highway and bridge starts fell 14% through April, while environmental public works starts fell 4%. April’s largest nonbuilding projects included the $3.3 billion Cayuga Station natural gas power replacement in Cayuga, Ind., and the $1 billion Tradepoint Atlantic Container Terminal in Edgemere, Maryland.
In the materials market, tariffs will continue to push up prices for the rest of the year, according to S&P Global Market Intelligence’s second-quarter forecast. Softwood lumber prices are forecast to rise 6.8% by the end of 2026, and plywood prices are expected to rise 4% over the same time period.
Steel prices are also expected to rise during the year. Structural form prices will increase 18.6%, according to S&P Global Market Intelligence, while structural fabricated metal products and fabricated structural sheet will increase 7.7% and 8.3%, respectively. Reinforcement of bar prices will see a double-digit increase of 11.4%, and plate is expected to increase by 5.5% by the end of 2026.
ConstructConnect’s Guckes shares the same prediction for steel prices. He points to the conflict in Iran as the catalyst, stating that “the full impact on energy prices has yet to be fully factored into construction prices.”
“Continuously rising energy prices will continue to work their way through the metal products supply chain,” he adds. “The result is an almost certain increase in future metal prices.”
