Building Barriers: How Rising Construction Costs Impact the Housing Affordability Crisis

A blog empowering Hispanic homeownership through advocacy and policy.

By Elizabeth Nimmons
October 21, 2025

America’s housing supply and affordability crisis is amplified by an often-overlooked force: the rising cost of construction. Homebuilders face labor shortages, soaring material costs, supply chain disruptions, and tariffs that dramatically increase the price of building new homes. According to the National Association of Home Builders (NAHB), the cost of building materials has risen 41.6% since the COVID-19 pandemic, far outpacing overall inflation. Compounding this problem further, recent tariff actions alone are estimated to add an average $10,900 to the cost of constructing a new single-family home.

For Latino families, who are driving U.S. homeownership growth and are often first-time homebuyers, these rising costs translate directly into a more expensive housing market with fewer affordable options. And, as builders shift toward constructing higher-priced homes to cover expenses, the entry-level housing that first-time homebuyers rely on is disappearing.

What is Driving Up Construction Costs?

• Labor Shortages: The construction industry continues to face a massive labor shortage. According to the Associated Builders and Contractors (ABC), as of January, 2020, the industry needed to attract 439,000 new workers in 2025 alone to meet demand. This persistent shortage increases competition for skilled labor, driving up wages, and delays projects, all of which increase the cost of new home construction.
• Material Cost Inflation and Tariffs: The cost of building materials has skyrocketed since the COVID-19 pandemic, due to both global supply chain disruptions and policy choices. Softwood lumber futures (market expectations of future lumber prices) were 5% higher in September 2025 than the same time last year. Importantly, many of the materials most commonly used in home construction (softwood, aluminum, gypsum, etc.) are imported from very trading partners and have been dramatically affected by the additional tariffs imposed this year.
• Zoning and Permitting Delays: Local zoning and permitting processes create constraints on builders and delay construction timelines. Each month a project is delayed costs developers more to finance and carry the property, and this expense is ultimately passed onto buyers. In April, NAHB estimated that 24% of the average new home price is attributable to regulations with a significant portion of these costs attributable to permitting and building codes.
• Developer Financing Costs: Elevated interest rates have made it significantly more expensive for builders and developers to finance land acquisition and home construction. Not only do higher borrowing costs increase the monthly carrying cost for developers, but when projects fact delays, interest compounds, exacerbating the problem. Financing costs create challenges particularly for small and mid-sized builders who depend on affordable credit to fund projects. More expensive financing costs results in developers favoring higher-end homes that produce wider profit margins, which does little to increase options for first-time and moderate-income homebuyers.

Policy Solutions to Reduce Construction Costs

• Zoning and Land Use Reform: By encouraging state and local governments to reform their zoning and land use laws to allow for higher-density housing, missing middle housing types, accessory dwelling units (ADUs), lower minimum lot sizes, etc., policymakers can increase the supply of land available for homebuilding and lower per-unit land costs. These changes can also enable more units per project (e.g., a quadplex on a lot where only a single-family home was previously allowed), spreading costs and increasing affordability. (For more on the importance of missing middle housing, zoning, and land use reform, see HERE.)
• Supporting the Construction Workforce: Expanding the construction labor force is essential to addressing the housing supply and affordability crisis. Policymakers should invest in workforce development initiatives, including apprenticeships, vocational training programs, and partnerships with community colleges to ensure workers have the skills needed for modern construction techniques. Supporting career pathways for younger workers and promoting diversity in the trades are also critical to bridging the gap.
• Equally important to cultivating a more robust American workforce is ensuring a stable and legal labor force through immigration reform. An estimated 25% of construction workers and 33% of those in skilled trades sectors are immigrants. Policymakers urgently need to provide legal pathways for immigrant workers to maintain a steady, reliable workforce, prevent labor shortages, and strengthen overall housing production capacity. Integrating immigration policy into workforce strategies ensures that the construction industry can meet demand while supporting housing and economic stability. For more on the connections between immigration and housing stability, see HERE.
• Tariff and Trade Policy Reform: Tariffs on imported construction materials, including lumber, steel, and aluminum, significantly increase building costs. While domestic production is vital for long-term supply chain resilience, high tariffs often raise prices for developers, builders, and, ultimately, homebuyers. Policymakers must address this additional expense by evaluating and adjusting trade policies to balance protecting domestic industries with keeping construction costs manageable. The exemption of critical homebuilding materials from tariffs, promotion of fair-trade agreements that ensure stable supply, and encouragement of investment in domestic manufacturing to reduce dependency foreign trade are all essential to lowering construction costs.

Why It Matters and What You Can Do

The rising cost of home construction is not just a builder’s problem; it is a significant barrier to homeownership. For Latino families working towards the American dream of becoming homeowners, every increase in construction costs can mean the difference between buying and being priced out. Addressing this challenge requires comprehensive policy work, ranging from zoning modernization to tariff reform, that brings down costs and increases the affordability and accessibility of homeownership.

NAHREP members and other real estate professionals have a vital role to play in advocating for these solutions by supporting reforms that lower construction costs and expand housing supply, educating buyers on how policy decisions impact affordability, and working with local governments and developers to advocate for zoning and land use reforms.