If 2024 was defined by stabilization, 2025 and 2026 are shaping up to test the entire development ecosystem again — not because of rate hikes or labor shortages, but because of something more structural: tariffs and insurance costs.

Both forces are quietly reshaping the economics of building. Tariffs are raising the cost of materials that developers depend on, while insurance premiums are eroding margins faster than rent growth can compensate. Together, they’re creating a perfect storm that threatens to widen the already deep gap between what it costs to build and what the market can actually bear.

Tariffs Take Aim at the Building Supply Chain

Cushman & Wakefield’s James Bohnaker recently estimated that tariffs could raise U.S. commercial construction costs by 4% to 5% in the coming months. The hit will vary by property type, but the direction is clear: imported materials are about to get more expensive.

Steel, aluminum, glass, and fixtures — the foundation of most large-scale projects — all fall within the latest rounds of tariffs. And while importers pay the duties, those costs don’t stay at the docks. They cascade: first to contractors and subs, then to developers, and finally to tenants through higher rents or delayed starts.

Some builders will adapt by shifting to domestic suppliers or lower-cost alternatives, but those options are limited. The U.S. doesn’t have enough domestic manufacturing capacity to fully replace Chinese or European imports in key construction inputs. The result is likely to be persistent cost friction, even if short-term adaptation softens the blow.

Insurance Costs Are the New Silent Killer

Tariffs are visible — they make headlines. Insurance doesn’t, but it’s quietly becoming one of the biggest financial headwinds in the industry.

Premiums for multifamily assets are now rising at nearly 12% annually, far outpacing inflation. That trend began in 2023, but it’s accelerated as climate risks and liability claims surge. In many cases, mid-sized owners are being asked to front more than $1 million in premiums and reserves just to get a deal across the finish line.

Fannie Mae and Freddie Mac have tightened insurance requirements at the same time insurers are reducing coverage for high-risk exposures — a dangerous mismatch that’s leaving developers squeezed between lenders’ expectations and insurers’ retreat.

What’s worse is that even when coverage is available, deductibles are rising, and exclusions are expanding. Developers are forced to buy expensive specialty coverage to stay compliant, while lenders demand deeper documentation and longer diligence periods. Closings are slower. Underwriting is harder. Margins are thinner.

Expense Growth Outpaces NOI

According to Trepp, multifamily NOI grew by 5.58% annually between 2015 and 2024, barely keeping up with expense growth. Insurance costs alone have more than doubled that rate.

In the top ten U.S. metros, operating expenses have risen nearly 6% per year, and that doesn’t factor in the new layer of tariff-driven cost pressure coming down the pipeline. Developers are feeling the squeeze on both ends — rising hard costs and shrinking financial cushion.

2026: A Harder Build Environment, But Not Without Opportunity

The next 18 months will likely redefine what it means to pencil a deal. Tariffs on construction materials, compounded by insurance escalation and regulatory delays, will make 2026 one of the most expensive build cycles in recent memory.

But within that pressure lies opportunity. Developers who can innovate — through modular construction, adaptive reuse, offsite fabrication, and smart material procurement — will carve out a clear advantage. Investors who understand the inflationary ripple effects early will position themselves in markets where new supply will be hardest to deliver and thus most valuable.

Expect to see that dynamic play out most sharply in coastal and climate-sensitive regions where insurance costs are highest (Florida, Texas Gulf Coast, and the Carolinas) and in supply-constrained metros where tariffs and labor costs compound (Los Angeles, Boston, Seattle, and Chicago).

In other words, the markets where it’s hardest to build are about to become the most rewarding for those who still can.