Peter Pappas, CEO of Terwilliger Pappas Multifamily Partners; Keith Harris, president of Avanath Investment & Development, a subsidiary of Avanath Capital Management; Molly McCabe, CEO and founder of HaydenTanner; Jake Dietrich, vice president of acquisitions and development at Onyx+East; and Adam Ducker, chief executive officer of RCLCO.
ULI/Deborah Myerson
At the 2025 ULI Fall Meeting in San Francisco, leaders from across the development and construction industries discussed how they are adapting to a volatile yet stabilizing housing landscape in a session called “Report from the Field: Wrestling with the Cost of Housing Construction.” Despite headlines about tariffs, labor shortages, and inflation, the panelists agreed that the cost environment has settled into what one called a “new normal.”
Moderator Adam Ducker, chief executive officer of RCLCO, led the conversation with Jake Dietrich, vice president of acquisitions and development at Onyx+East; Molly McCabe, CEO and founder of HaydenTanner; Keith Harris, president of Avanath Investment & Development, a subsidiary of Avanath Capital Management; and Peter Pappas, CEO of Terwilliger Pappas Multifamily Partners.
Ducker opened the session by framing the challenge: “We’re wrestling with three interconnected forces—construction costs, capital markets, and the evolution of housing products and technology. Each one affects the feasibility of development, and together they’re reshaping how we think about delivering housing in today’s environment.”
He facilitated the conversation around three topics:
· Construction costs—what’s happening now, what’s next year likely to bring, and how that translates into strategy.
· Capital markets and dundamentals—the availability and pricing of debt and equity, and how developers are adapting.
· Product and technology—innovations in construction and design influencing the next generation of housing.
Construction costs moderating Despite ongoing headlines about tariffs, labor shortages, and supply chain disruptions, the panelists agreed that construction costs have largely stabilized into a “new normal.”
Peter Pappas observed that while “there’s still a lot of noise” about inflationary pressures, actual cost escalation has moderated. Materials like lumber and roofing have leveled off, though mechanical and electrical trades remain elevated due to competition from industrial and data center projects. The Southeastern U.S., where his firm operates, remains active, and securing financing early allows general contractors to commit to tighter pricing.
Jake Dietrich noted that tariff impacts have been delayed until at least 2026, with suppliers shifting sourcing to other countries. He anticipates one to three percent decreases in construction costs but is not underwriting those reductions. In the Midwest, moderate cost relief is likely as overbuilding remains limited.
In smaller markets, volatility persists, according to Molly McCabe. “Without capital locked in, it’s difficult to hold pricing,” she explained, citing contingency budgets that have ballooned to manage risk. Site costs have proven especially challenging—sometimes 20 percent higher than projected.
Keith Harris pointed to site preparation and environmental compliance as ongoing cost drivers, particularly in redevelopment and infill contexts. Still, most panelists agreed that for 2026, underwriting assumptions are essentially flat.
“Without rent growth,” Pappas noted, “we don’t expect starts to pick up meaningfully.”
Developers are controlling what they can by locking in materials early, leveraging capital certainty with contractors, and remaining cautious about assuming future cost reductions.
Capital markets,fundamentals The capital environment remains tight but shows signs of reopening. Dietrich described institutional investors as having had “pencils down” for much of the year, though renewed interest is emerging. Regional banks have stepped in with competitive terms, and developers ready to move quickly may secure financing as liquidity returns.
Harris discussed Avanath’s strategy to expand modular development through an open-ended, low-leverage fund focused on affordable housing. “Modularity allows us to deliver faster and more efficiently,” he said, characterizing it as a “build-to-core-plus” model that balances yield and mission.
For Pappas, the slowdown among traditional institutional partners such as Cigna and Prudential has been offset by private equity investors seeking to get ahead of the next cycle. “Those starting now for 2027 delivery will likely benefit when supply tightens again,” he said.
Still, many investors are waiting for distress that hasn’t materialized. “We’ve had plenty of curveballs this year,” Dietrich added, “but the big wave of distress never really came.”
McCabe noted an interesting geographic shift: “We’re starting to see capital sources—pension funds and others—looking at the Midwest and smaller markets for the first time.” Harris called this part of the natural investment cycle: as institutional buyers gain confidence in discounted acquisitions, they begin to pursue new development.
Panelists agreed that well-capitalized projects in strong submarkets will attract funding first, and developers with creative capital stacks or long-term partners will be best positioned to move forward as confidence returns.
Building what’s next Modularity, mixed-use integration, and innovative partnerships are helping developers adapt to a tighter market. Ducker noted, “The question isn’t only what it costs to build, but what—and how—we’re building.”
Harris emphasized modular construction as one of the most promising ways to lower costs and accelerate delivery in the affordable housing space. Avanath’s partnerships with modular manufacturers allow projects to be assembled faster, with greater cost predictability and quality control.
The panel also discussed the growing importance of aligning design and entitlements. Pappas observed that municipalities increasingly expect mixed-use components, public benefits, or ground-floor retail as part of multifamily proposals. “It’s become an art to get zoning approved,” he said. “You need to show that what you’re delivering adds value to the community.”
McCabe shared that in smaller or rural markets, innovation often lies in financing and partnership models rather than technology. Creative land structures—such as joint ventures with legacy landowners—can help unlock development capacity while addressing local affordability challenges.
Dietrich added that firms are experimenting with more efficient layouts, streamlined materials, and tighter site designs to maintain feasibility as capital and labor costs remain high.
Whether through modular delivery, new design strategies, or creative partnerships, developers are seeking efficiency gains that don’t sacrifice quality or community support.
Timing the next cycle In closing, Adam Ducker reflected on the cyclical nature of the market: “In 2012 and 2013, it didn’t feel cheap—but later it was. The challenge for 2026 is knowing when to lean in again.”
The panelists agreed that the next cycle will favor developers who combine discipline and creativity. Construction costs appear to be stabilizing, and while institutional capital remains cautious, regional banks and private funds are stepping in to fill financing gaps. Projects that can demonstrate strong fundamentals—solid locations, resilient design, and walkable amenities—will continue to attract capital, while modular and mixed-use approaches are helping developers deliver more efficiently.
Keith Harris noted, “There’s plenty of capital out there—it’s just more selective. The question is whether we’re building what investors want.” Across construction, finance, and technology, the consensus was clear: Success in 2026 will depend not on waiting for costs to fall, but on adapting quickly, partnering strategically, and building smarter.
