Rising Material Costs Impacting Construction Projects

Over the past few years, the US construction industry has faced a clear and unsettling reality: the rising cost of construction materials is not just a temporary phenomenon. Price increases are here to stay, and they’re reshaping how owners, contractors, and developers plan building projects. The impact of material costs on construction extends far beyond line items on a bid, affecting everything from profit margins and financing decisions to project feasibility and client expectations. In this environment, it helps to understand what’s driving prices upward so you can shift your focus to cost control.

Building Material Price Volatility Creating Challenges for Contractors in South Central WI

Recent Movement in Material Prices

Rising prices for materials, labor, and other expenses over the last 12 to 24 months have pushed overall construction costs higher at a faster rate than in previous years. The following price data reveals the stress in the system:

Copper pipe prices are up over 40 percent in many US markets.
Steel mill product prices were 8.8 percent higher in July 2025 than one year prior.
In March 2025, softwood lumber showed a 29 percent increase, and hardwood lumber showed a 35.2 percent increase, relative to pre-COVID levels (defined as December 2019 through February 2020).
More broadly, the producer price index (PPI) for construction materials has climbed steadily. Prices rose 0.2 percent in May 2025 due to spikes in iron, steel, copper, and aluminum. Input prices were 1.3 percent higher year-over-year overall at that time. These figures did not reflect steel and aluminum tariffs that took effect in early June.
Nonresidential building inflation in 2025 is projected to be 4.0 percent before tariffs, and 4.4 percent when including tariff effects. These forecasts reflect construction inflation factors embedded in current cost models.

What’s Driving These Construction Cost Inflation Trends?

Several factors are amplifying one another, making material inputs among the most volatile, inflation-prone sectors in construction at the moment. These include:

Supply chain disruptions: Global shipping delays, port congestion, and limited ocean/rail capacity have increased lead times and freight costs. Delays in raw inputs ripple into finished goods, forcing contractors to carry buffer stocks or pay rush fees.
Tariffs: New and expanded tariffs (especially on metals and lumber) increase the cost of imported and semi-processed materials. Trade uncertainty also complicates forecasting and vendor contracts.
Rising demand: Post-pandemic stimulus programs, infrastructure investments, and a jump in construction activity have increased demand for construction materials.
Raw material and energy inflation: Many materials depend on energy-intensive processes. Rising input costs for energy, fuels, and chemicals translate into higher material prices.
Labor shortages: The skilled labor gap in manufacturing, shipping, and processing sectors raises the cost of producing materials.

Impact of Material Costs on Construction Budgets & Timelines

Rising material costs exert pressure throughout a project’s lifecycle, often in ways you can’t see until it’s too late. For example:

Budget overruns and depleted contingency funds: A bid prepared six months in advance may underestimate the final price because material costs could rise in the meantime. In this case, owners see their narrow margins erode, and contractors may have to eat the loss or seek change orders.
Riskier contracts and more disputes: Fixed-price contracts become riskier. Contractors may attempt to include escalation clauses or submit change orders, and disputes over who bears the cost of fluctuations become more common.
Schedule delays and sequencing changes: Longer lead times and material shortages can disrupt the workflow, leaving crews waiting around and necessitating rework. Such delays often push back finishing, inspections, and final project delivery.
Design compromises: To manage budget pressures, it may be necessary to trim the scope or substitute lower-cost materials to maintain profitability, sometimes to the detriment of performance, maintenance, or longevity.
Cash flow and financing strain: Projects may require additional funding sooner than expected, and lenders may impose stricter terms. Delays can also lead to penalties and higher interest rates.

Rising Construction Material Costs Impacting Project Timelines and Budgets in South Central WI

How the Market Is Reacting & How Firms Are Adapting

Faced with inevitable material inflation, construction firms, developers, and owners are shifting strategies—some more successfully than others. Here’s how to combat construction material price trends:

Order in advance or in bulk: Locking in prices early helps shield your project from future increases. Of course, this technique carries risk if the designs change.
Form strategic vendor partnerships: Strong relationships with suppliers, longer-term purchase agreements, or collaborative risk-sharing reduce volatility.
Establish escalation clauses tied to cost indexes: Adding explicit construction inflation factors or escalation clauses to the contract enables mid-project adjustments.
Use value engineering and modular design: Options that allow for material substitutions or modular/prefabricated components minimize the impact of unstable costs.
Hedge costs and track the market: Use financial tools or real-time data to stabilize expenses and spot price hikes early.
Communicate clearly and plan for contingencies: Explain cost volatility to clients, set expectations up front, and be transparent about escalation clauses in the contract.

What to Expect Going Forward

The next few years will test the industry’s ability to adapt to inflationary pressures. The firms that thrive will be those that can navigate this dynamic and embed resilience into every stage. Here’s what to expect:

Moderating but persistent inflation: While rampant spikes may decrease, experts project ongoing construction cost inflation trends in the 4 to 6 percent range (above normal) for many sectors.
More volatility and unpredictability: Changing tariff policies, raw material constraints, climate events, or geopolitical disruptions may cause sporadic jumps, even in otherwise stable periods.
Varying impacts by region and sector: Projects in remote locations or those that require large amounts of steel, concrete, or other raw materials may face double-digit cost increases.
Increased role of technology and automation: More firms will adopt smart construction technologies, such as supply chain tracking, AI-based forecasting, robotics, and cloud collaboration, to mitigate the impact of rising construction material costs.

Partner with Advanced Building Corporation

If you’re looking for a partner to help you weather the rising cost of construction materials, look to Advanced Building Corporation. Thanks to our decades of experience, we continue to deliver high-quality, cost-effective projects, even in the face of rising material costs. If you’re planning a design-build commercial endeavor—whether industrial, multi-family, retail, or government-related—please contact us today. We’re ready to bring transparency and price stability to your next project in South Central Wisconsin.