Written By: Taylor Besl

As 2025 unfolds, the residential construction sector is cautiously optimistic, anticipating revenue growth. However, challenges such as escalating material costs, labor shortages, and affordability concerns are impacting profitability. Simon-Kucher's 2025 Construction and Building Materials Study highlights these trends and offers strategies for manufacturers and suppliers to adapt to evolving customer needs.

Addressing Rising Costs and Margin Pressures

While many anticipate growth through increased volume, pricing strategies remain underutilized. General contractors and remodelers tend to pass rising costs onto customers, whereas residential builders, recovering from previously high gross margins, often cannot. For instance, Lennar projects Q1 2025 gross margins to dip below 20%. Suppliers can support builders by offering value-engineered alternatives, pricing incentives, and materials that reduce installation costs, helping both parties maintain profitability.

Responding to Affordability Constraints

Affordability issues are prompting builders to downsize homes, with an average reduction of 6% in square footage. Additionally, over half are willing to accept lower margins or provide buyer incentives to keep homes affordable. Suppliers offering space-efficient solutions and innovative materials that maximize functionality in smaller homes will align well with these builder strategies.

Embracing Sustainability

Sustainable building materials are gaining traction, with nearly half of residential projects incorporating them. Builders are more proactive than contractors in this area, with over 84% sourcing sustainable materials at least occasionally. Manufacturers providing high-quality, energy-efficient materials at competitive prices can differentiate themselves in this growing market segment.

Advancing Digital Purchasing

Digital purchasing is becoming increasingly prevalent, with expectations that nearly half of materials will be sourced online by 2030. Despite this trend, challenges like order complexity and customer service concerns persist. Suppliers investing in seamless online experiences while maintaining high-touch customer support can gain a competitive edge.

Prioritizing Service to Foster Brand Loyalty

While brand loyalty remains strong, exceptional service is paramount. Suppliers that combine reliable products with outstanding service can strengthen relationships and secure long-term partnerships in the evolving construction landscape.