While U.S. tariffs have kept construction costs high, some developers say a decrease in overall building activity is driving down labor expenses and helping to balance the scale. Workforce housing developer and investor Scott Choppin described the situation in his recent The Real Signal newsletter, noting that although hard costs have risen 4% in the past 18 months, his business is seeing “increasing subcontractor-initiated communication, and a willingness to travel further at no additional cost.” Choppin explained that improved labor market conditions—brought on by reduced construction volume—along with efficiencies gained from experience and value engineering, are more than offsetting the impact of tariffs.
American Homes 4 Rent CEO Bryan Smith echoed these sentiments during the company’s August 1, 2025, earnings call, emphasizing that savings in labor and operational efficiency are making up for tariff-related increases.
Across the commercial real estate construction industry, however, experiences differ widely. Gregory Kraut, CEO of KPG Funds, told GlobeSt.com that his firm, which focuses on smaller, sub-$50 million projects, has not seen material cost increases. “Labor is always the biggest cost for construction jobs and schedules,” Kraut said. “There’s been a threat of recession since Covid. Construction companies haven’t hired a lot of people, so they’re very thinly staffed.” He also noted ongoing immigration challenges among subcontractors' workers.
On the other hand, Jeff Klotz, CEO of The Klotz Group of Companies, reports substantial price hikes, with major building materials and supplies rising 20% to 25%. Klotz reflected on a time when sourcing overseas offered significant savings, but now finds those advantages have largely disappeared.
For some, lower labor costs are providing a cushion. Daria Hosseinyoun, president of FH One, tells GlobeSt.com that a drop in ground-up construction has left general contractors and subcontractors “hungrier for work, leading to more competitive bids and faster turnarounds.” Hosseinyoun adds that “GCs are also offering extra concessions to win projects,” helping to counteract higher tariff burdens.
Yet not all see it this way. “We are not seeing a reduction in labor nor any ask for increases in material costs due to tariffs across all of our projects,” reports Clark Lowe, CEO of the O’Connor Company.
San Francisco-based architect and engineer Charles Bloszies said construction costs remain “stubbornly high,” though steady, citing locked-in union wage hikes offset by increased subcontractor competition. “The biggest change we are seeing is significantly more interest in bidding on projects,” Bloszies notes.
Meanwhile, Carey Heyman, managing principal for real estate at CliftonLarsonAllen, points out that contractors are bidding more aggressively—squeezing profit margins—and warns that tariffs “remain a significant concern and are not necessarily being offset by labor savings.”
For now, developers and contractors across the CRE landscape continue to experience a range of outcomes as tariffs and labor costs interact. There is, it appears, no single answer.
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