CBA: Weekend Update - July 30
MMS Strategies is pleased to provide this week’s roundup of federal and state developments affecting the California construction industry. This edition takes a deeper look at cost pressures, housing policy momentum, and regional project activity as contractors head into the final months of the legislative session.
Quick Takeaways
- Material cost inflation remains elevated—prioritize escalation and tariff-sharing language.
- State housing reforms and Homekey+/bond funding are creating near-term opportunities in affordable and supportive housing.
- Adaptive reuse and selective commercial projects are gaining traction where fundamentals support higher underwriting standards.
Federal Update
Tariffs Continue to Drive Material Cost Increases
New global and Canada-specific tariffs are adding pressure on construction materials. The Trump Administration has expanded duties on imports from multiple trading partners, building on earlier Section 232 tariffs (up to 50% on steel, aluminum, and copper, with 25% on many derivatives). A 50% tariff on certain Canadian goods—including cement, paint, plywood, and related products—is scheduled to take effect August 19.
Analysis shows construction material costs rising year-over-year through June 2026 - Contractors report that bid prices are not fully keeping pace, squeezing margins as firms absorb a portion of the increases. Softwood lumber, drywall components, and metal products remain particularly exposed.
Key takeaway for California contractors: Build explicit tariff and escalation language into contracts.Monitor the August 19 Canada tariff effective date closely for cement and related materials used in concrete work.
Federal Bill Watch:
H.R. 8870 – BUILD America 250 Act: The House Transportation & Infrastructure Committee has approved this five-year surface transportation reauthorization package (~$580 billion for FY2027–2031). It emphasizes formula funding and long-term certainty but does not include the large advance appropriations that characterized the IIJA. Status remains unchanged—awaiting full House consideration. The Senate has not yet released companion legislation.
The IIJA surface transportation authorizations expire September 30, 2026. Without a new multi-year bill or short-term extension, formula funding for highways, bridges, and transit faces significant uncertainty.
California Update
California’s construction market is operating in a selective, higher-cost environment. Developers are becoming more cautious amid elevated interest rates, persistent material inflation, and labor constraints, yet housing policy reforms and state funding continue to create targeted opportunities.
Cost and Market Conditions California has been among the weakest construction labor markets nationally in recent months, with job losses outpacing other states. The California Construction Cost Index posted a sharp monthly jump earlier this summer after several relatively flat readings. Tariffs are a primary driver of material cost escalation—steel, copper, aluminum, and lumber remain elevated relative to pre-2020 baselines. Contractors are reporting that material costs are rising faster than bid prices, placing ongoing pressure on margins.
At the same time, needs-based sectors (healthcare, industrial, and affordable housing) continue to attract capital. Adaptive-reuse projects are gaining traction as office values remain historically low, making previously marginal office-to-residential or mixed-use conversions more financially viable.
Housing Policy Momentum Governor Newsom signed major housing affordability reforms (AB 179) as part of the 2026–27 budget. The package modernizes affordable housing financing, aims to reduce per-unit costs by an estimated $60,000–$70,000 through streamlined “One-Stop Shop” financing and impact fee changes, and creates a Disaster Rebuilding Fund.
Additional recent actions include:
- Continued Homekey+ Proposition 1 awards supporting permanent supportive housing (including units reserved for veterans).
- SB 79 (Transit-Oriented Housing Development) remains fully in effect, overriding local zoning near qualifying transit stops in eight counties (including Sacramento) when labor standards are met.
- The $11.25 billion Veterans and Affordable Housing Bond Act (SB 417) is on the November ballot.
- These reforms, layered on earlier CEQA streamlining (AB 130/SB 131), are designed to accelerate entitlement and reduce soft costs—particularly valuable in a high-material-cost environment.
Other Statewide Notes Large infrastructure and public works projects continue to move, including dam safety and water-related work. Accessibility standard updates are also influencing commercial and institutional projects as valuation thresholds rise.
CA Bill Watch: (Legislature reconvenes August 3, 2026)
The Legislature is currently in recess. Policy committees resume next week. Key bills to monitor:
- AB 1070 – Small Scale Commercial Residential Streamlining: Would allow qualifying small-scale residential developments to use the California Residential Code.
- AB 1903 – Construction Defect Reform: Would reform defect litigation for qualifying condominium and townhouse projects to encourage additional production.
- AB 2044 – Building Code Cost of Compliance: Requires state agencies to evaluate and disclose cost impacts of proposed building code changes before adoption.
- AB 2074 – Downtown Revitalization: Streamlines approvals for qualifying downtown redevelopment and mixed-use housing projects.
- AB 609 – CEQA Reform for Infill Housing: Expands CEQA exemptions for qualifying infill housing developments.
- No significant amendments occurred during the recess. Stakeholders expect renewed activity once committees reconvene.
The Captiol will reconvene on August 3, 2026 with the final passage deadline August 31, 2026. We can expect a very busy August with final recess September 12, 2026.
Thank you -
D
Dion Dwyer
Managing Partner | MMS Strategies
520 Capitol Mall | Suite 280
Sacramento, CA 95814
916.316.1123