The U.S. construction industry is staring down a number of uncertainties heading into 2025.

Perhaps the biggest unknown is how President-elect Donald Trump’s policies — especially around tariffs and immigration — will affect the cost of construction materials and the availability of labor. But the direction of the U.S. economy, including interest-rate movement and supply and demand, also will influence which segments of the construction market could see momentum or regression.

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Total construction starts fell 6% in September, to a seasonally adjusted annual rate of $1.1 trillion, according to Dodge Construction Network, which tracks construction activity in the residential, nonresidential (including commercial and institutional projects) and nonbuilding (such as infrastructure) sectors.

But on a year-to-date basis through September, total construction starts were up 2% compared to the first nine months of 2023: Residential starts were up 7%, nonresidential starts rose 2% and nonbuilding starts were down 3%, according to Dodge.

Anirban Basu, chief economist of the Associated Builders and Contractors, said even with the higher interest rates of the past two years, contractors and builders overall haven’t seen their pipeline or deal flow rapidly constrict. Rather, their biggest challenge has been labor. While there’s been employment growth, it hasn’t necessarily kept up with construction starts.

In October, the national construction industry added about 8,000 jobs, according to data from the U.S. Bureau of Labor Statistics. Annually, the construction industry’s employment grew 2.8%, or by 223,000 jobs, between October 2023 and October 2024.

The overall construction unemployment rate rose in October, to 4.2%, a sliver higher than the 4.1% unemployment rate across all industries.

For many in construction or related industries, the overall sentiment is to prepare now.

Louis Molinini, Americas market lead of project and development services at Jones Lang LaSalle Inc. (NYSE: JLL), said since the first interest-rate cut issued by the Federal Reserve in September, the firm has seen more activity on the advisory and pre-development front. Depending on the project, that may translate into a construction start in nine to 12 months.

“You’re looking at the second half of next year before we see those starts really starting to materialize,” he said.

The biggest hangup for developers to embark on new construction remains cost, Molinini said.

Construction costs this year have largely stabilized after a period of high inflation. Construction input prices rose 0.3% in October compared to the previous month, according to the most-recent Producer Price Index data from the U.S. Bureau of Labor Statistics. But overall construction input prices were down 0.2% from the same month the year prior.

While the cost of construction has stabilized this year, prices haven’t come down. There’s also still a disconnect between purchase cost and sale price, and despite recent rate cuts, it’s still very expensive to finance projects, Molinini said.

Those forces may limit new commercial development next year because most owners today would rather buy an existing property or portfolio at below-replacement cost, renovate it and lease it up instead of embarking on a three-year period to build something out of the ground, he said.

What a Trump administration might mean for construction costs next year is still up in the air, but developers — especially well-capitalized ones — and contractors are preparing now.

Owners and investors trying to get ahead of the curve are going through predevelopment activities like design and entitlements so they are ready to break ground as soon as possible, Molinini said.

Basu said the obvious solution to avoid anticipated price hikes from policies like tariffs is to buy now.

“I suspect among many contractors, there is a rush to buy critical materials and equipment before tariffs might have any impact on prices,” he said. Ironically, that could drive up pricing in the near term.

Some sectors of the commercial real estate market, particularly data centers and mega manufacturing facilities, that are occupying a bigger share of the construction pipeline also employ a significant number of workers, including subcontractors in technical trades. The cost to hire those workers — especially for trades like electrical and mechanical work — will remain elevated if other property sectors ramp up in 2025.

“You’re going to be paying a premium for those subcontractors to be available because the money is still flowing so quickly and heavily through data centers,” Molinini said.

It’s estimated 30% of the U.S. construction industry workforce is made up of immigrants, although in states like California and Texas, that share is as high as 40%, according to the National Immigration Forum.

The percentage of the workforce that comprises undocumented immigrants — the group most directly targeted during Trump’s bid for the White House — is hard to ascertain. But it’s well known the construction industry employs undocumented workers, Basu said, as the industry is challenged to find enough labor in the U.S. to staff job sites.

“If all of a sudden it becomes more difficult to access that workforce, that would tend to be inflationary with respect to wages and project-delivery costs,” he said. “If you combine that with more difficulty in terms of financing projects, none of that is good for construction starts.”

Construction trade associations like the Associated General Contractors of America have publicly pushed the incoming Trump administration and Congress to not only boost investments in construction education and training programs, but also to allow more people to lawfully enter the country to temporarily work in construction.

“Our members can’t help develop the economy if they don’t have enough people to complete infrastructure and development projects,” said Jeffrey Shoaf, CEO of the AGC, in a statement. “Encouraging and preparing a new generation of construction workers will help workers and support economic development.”

An AGC analysis this week of federal employment data found construction employment increased in 41 states in October compared to a year earlier, while 33 states and the District of Columbia added construction jobs between September and October.

Ken Simonson, the association’s chief economist, said in a statement that while year-over-year job growth has become more widespread in construction despite a slowdown in other sectors, more states would have posted gains in construction employment if there were enough qualified workers available to hire.

Additional tariffs are expected to be imposed under a Trump White House, with the president-elect having publicly discussed a universal tariff of up to 20% on goods imported from overseas and as much as a 60% tariff on items from China. But what actually becomes policy after Trump’s inauguration is uncertain.

Basu said China supplies some 18% of U.S. imports, including key builder materials like drywall.

If sweeping tariffs on goods from abroad are put in place — even if they aren’t as extreme as the 60% proposed for Chinese goods — that would drive up project-delivery costs.

“Some of these proposals would not be to the benefit of overall construction activity,” Basu said.

It is possible tariffs would help spur more manufacturing activity domestically, which would increase the construction pipeline of those projects, Basu added.

Tariffs imposed during Trump’s first presidential term were largely targeted in nature, such as tariffs specifically imposed on steel and aluminum. Those are materials commonly used in construction, Basu said, but the U.S. economy at that time had extremely low interest rates, which made it easier for developers to finance additional price hikes on those items. That’s no longer the case.

Moreover, Trump may potentially impose more widespread tariffs during his second term — and while the Federal Reserve has imposed two interest-rate cuts this year, rates are still high and financing is still tough to obtain.

Basu said his hunch is Trump sees the stock market has a barometer of his performance as president. Tariffs that aren’t well targeted would negatively impact corporate profits and, ultimately, drive down stock prices, meaning it’s possible Trump’s actual policy on tariffs won’t be as aggressive as what he campaigned on.

“While contractors are confident, in my mind, as an economist, the outlook is cloudy,” Basu said.