The construction industry faces new challenges as shifts in labor laws, trade policies, and regulations take shape. Workforce shortages continue to strain projects while rising material costs add to financial pressures. With the new administration settling in, recent policy changes will affect builders, contractors, and developers, shaping the industry’s path for 2025 and beyond.

Quick looks:

• Stricter immigration policies and enforcement could shrink the construction workforce, exacerbating an already critical labor gap.
• Changes in worker classification rules and the expiration of key tax incentives may raise construction firms’ labor and operational expenses.
• Proposed tariffs on imports from Mexico, Canada, and China threaten to increase the costs of steel, lumber, and other essential materials.
• To navigate these challenges, businesses must invest in workforce development, explore alternative sourcing, and engage in policy advocacy.

The construction labor crunch

The construction industry is bracing for major disruptions as the new administration ramps up immigration enforcement. A recent executive order, signed on January 20, 2025, has kicked off Trump’s central 2024 campaign promise, what he called “the largest domestic deportation operation in American history.” With construction heavily reliant on undocumented workers, the sector is directly in the crosshairs.

Skilled labor has been in short supply for years, and the gap is only growing. The construction industry will need an estimated 439,000 new workers in 2025 to meet demand. Ongoing housing projects, disaster recovery efforts, and the increasing demand for data centers are stretching an already strained workforce. Finding enough skilled workers to meet these demands is becoming an uphill battle, and tighter immigration policies will worsen the industry’s labor shortages. 

If a significant portion of the workforce is removed, projects could be delayed, labor costs could rise, and deadlines could be difficult to meet. Contractors are already feeling the pressure, and industry experts warn that things could get even more challenging in the months ahead. To help keep projects moving, construction firms must rethink hiring strategies, explore workforce development programs, and push for policy solutions. 

Stricter immigration enforcement is adding another layer to the challenge. Considering that 26% of the construction workforce comprises immigrants (with 13% of construction employees being undocumented), a significant portion could be at risk with stricter policies, further tightening the labor supply. The construction industry has long relied on immigrant labor, especially in states like Texas and California, where foreign-born workers comprise a large workforce. If deportation policies ramp up, the labor pool could shrink even further, making it more challenging and expensive for contractors to complete projects on time.

Regulations and taxes: What’s changing for construction?

New policies are reshaping how construction businesses operate, and regulatory shifts could significantly impact everything from worker classification to tax incentives. Labor laws and tax policy changes create uncertainty, leaving contractors and developers wondering how to adjust.

Worker classification and labor rules

The rules around worker classification are shifting, and construction businesses could feel the impact. In March 2024, the Department of Labor (DOL) introduced a new rule that changed how workers are classified as employees or independent contractors. This update replaces a 2021 rule and brings back a multifactor test to determine whether a worker is truly independent or should be classified as an employee.

The newer rule considers factors like an employer’s level of control, whether the worker has a real opportunity for profit or loss, and how permanent the job is. This could mean higher costs and more oversight for construction companies that rely on subcontractors and gig workers. 

With stricter worker classification rules, some contractors previously treated as independent may need to be reclassified as employees, which would increase wages, benefits, and compliance costs. This shift could pressure construction firms that depend on flexible labor to keep projects moving. 

Tax policy shifts on the horizon

The construction industry is navigating a complex landscape of shifting tax policies and potential new tariffs, which could significantly impact operations and profitability. Several key tax incentives that have benefited construction businesses are set to expire soon:

• Bonus depreciation: Introduced under the Tax Cuts and Jobs Act (TCJA), bonus depreciation allowed businesses to immediately deduct a significant portion of the cost of eligible property, such as equipment and machinery. However, this benefit is being phased out: it decreased to 80% in 2023, 60% in 2024 and is scheduled to continue declining until it reaches 0% in 2027. Without this incentive, construction firms may face higher tax liabilities, affecting cash flow and their ability to invest in new projects and equipment.
• Section 199A deduction: This provision offers a 20% deduction on qualified business income (QBI) for pass-through entities, including many construction companies. The deduction is set to expire at the end of 2025, which could lead to increased tax burdens for these businesses, further impacting their financial planning and investment capabilities.

Potential new tariffs and their implications

In addition to tax changes, the industry is bracing for potential new tariffs that could affect material costs:

• Tariff proposals: The administration has signaled intentions to impose tariffs on imports from key trading partners. For instance, there is a proposal for a 25% tariff on materials imported from Mexico and Canada and a 10% tariff (above any additional tariffs) on Chinese imports. These tariffs could significantly increase the cost of construction materials, such as steel and lumber, leading to higher project expenses and potential delays.

What the industry can do

With labor shortages, shifting regulations, and rising material costs putting pressure on construction, businesses can’t afford to take a wait-and-see approach. Proactive steps—both within the industry and at the policy level—will be critical to keeping projects on track and controlling costs.

Building a stronger workforce

Expanding access to temporary work visa programs specifically for construction could help bridge the skills gap, allowing companies to bring in much-needed labor. At the same time, long-term solutions are just as important. Investing in high school and post-secondary training programs can help grow a domestic workforce equipped with the skills the industry needs. More funding for trade schools, apprenticeships, and on-the-job training programs could be a game-changer.

Bracing for trade and tariff impacts

Construction companies should be preparing for higher costs. Diversifying suppliers, bulk purchasing, and exploring alternative materials could help soften the financial blow. However, industry leaders also have a role in shaping these policies. Engaging with policymakers to advocate for tariff exemptions or industry-specific relief measures could help mitigate some of the impact, making it easier for businesses to keep projects moving forward.

Bottom line

The construction industry thrives when it adapts. Whether it’s workforce development, regulatory compliance, or material sourcing, taking action now can help companies stay competitive in an increasingly complex landscape.

Navigating these changes will require proactive adaptation and industry-wide advocacy. Staying informed and prepared will be critical for companies looking to stay ahead of the curve.

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