CHICAGO, IL - The trajectory of multifamily construction pricing in 2025 is at an inflection point and will be significantly influenced by the severity of President Trump’s long-anticipated tariffs on materials such as aluminum, steel and electronics and near-term market headwinds including constricted capital markets and softened rents.
According to Origin Investments, a multifamily real estate fund manager with 28 projects in varying stages of development and construction, tariffs could cause pricing spikes of up to 7.5% for all construction materials and lead to overall project cost increases of 3% to 4%. The firm also notes that higher borrowing costs and slow rent growth in the near term could blunt the price increases caused by tariffs.
“The impact of highly anticipated tariffs is hard to understate as a fund manager, yet the effect of capital market challenges coupled with a softened rent environment can’t be overlooked either,” said Kevin Miller, senior vice president, Origin Investments. “If the existing headwinds aren’t tamed, fewer new projects will be started, making cost increases somewhat irrelevant.”
Long-term rent growth may be far more predictable than interest rates. In its 2025 Rent Growth Forecast, Multilytics®, Origin’s proprietary suite of machine learning models, forecasted year-over-year (YOY) Class A multifamily rent growth of 2.4% by January 2026. In the report, its five-year compounded annual growth rate (CAGR) for rents in the 15 cities where Origin invests in and owns multifamily assets are all greater than 4.0%, with many over 5.0%.
According to estimates from the National Association of Home Builders (NAHB), approximately 46% of U.S. construction materials are sourced from China, Canada and Mexico. Further, 35% to 50% of total multifamily project construction costs are tied to finished materials such as lumber, appliances and HVAC equipment.
“As a developer and investor, Origin and our construction partners across the country closely monitor construction costs, from the big picture down to the price of specific building materials,” Miller said.
Miller noted that, as expected, forward-looking indicators like new permit issuances and housing starts were declining in 2024 because of market forces unrelated to any formal announcement of tariffs by President Trump.
Construction Partners Survey Results
Origin regularly surveys construction partners and contacts to gauge contractor sentiment on topics ranging from tariffs to material costs to the cost and availability of labor. Highlights of the survey findings include:
- Despite concerns about tariffs, most respondents expect flat (40.9%) to moderate (45.5%) increases in construction pricing trends for 2025, while an optimistic 13.6% anticipate a moderate decrease.
- The greatest concerns for pricing volatility are in lumber (40.9%), electrical switchgear and components (27.3%), and concrete (18.3%).
- Respondents believe the biggest challenges facing multifamily construction are financing (68.2%) and labor availability (18.2%).
- On the labor front, more than a quarter (27%) expect labor costs will increase to 10% from 5%; the same amount expects increases of 1% to 5%. Nearly a third predict no change in labor costs.
- With construction starts and permits declining, over 70% forecast significant or moderate improvement in labor availability.
“The general sentiment is that the impact on development will be short-lived because the level of new construction starts remain depressed due to lagging rent growth and more expensive debt,” Miller said. “This supports the viewpoint that a project that is capitalized in today’s environment has great potential because in spite of everything else, demand is this there.”