Trump imposed tariffs this week on the country’s three biggest trade partners—including 25% on all goods from Canada and Mexico and an additional 10% on Chinese imports—which will ripple across the U.S. economy. One particular area where the impacts will be felt is housing, since construction relies on metal, lumber, and machinery heavily imported from those three countries.
“This will result in higher costs, intensifying already excruciating affordability issues,” says Joe Brusuelas, Chief Economist for RSM, a global consultancy.
It’s too early for analysts to have exact figures on just how much housing costs will be impacted, and much of the predicted increases have already occurred, as a fearful industry priced in trade disruptions in recent months.
But overall, tariffs are expected to increase prices on raw materials, extend project timelines, raise uncertainty and make building more expensive. One estimate found the measures would potentially raise material costs by a few billion dollars a year. It’ll put a dent in the construction industry, which represents 4% of the nation’s GDP. And finding domestically made substitutes will prove incredibly difficult in the short term—if not impossible, due to the substantial cost and challenge of building up manufacturing capacity or reopening shuttered factories.
Nearly a third of all wood used for homes comes from Canadian forests, says Brusuelas, and those costs will be passed along to consumers in the form of higher prices.
Commercial developments, from skyscrapers to apartment buildings to factories, will also feel the pinch due to their reliance on steel and aluminum. Even though the U.S. currently makes 80% of the steel used domestically, prices will still be impacted, according to Tom Park, national strategic supply chain vice president at Skanska. Just the threat of tariffs has pushed steel prices up 15% since January 1, and contributed to a sharp rise in material prices in February. Park predicts “single-digit” total price increases in commercial construction due to tariffs, a small figure but enough to make projects economically infeasible, or end up pushing up rent on finished apartment buildings.
Projects with smaller margins, especially affordable housing developments, will be challenged to make financing work with additional material costs.
The latest round of tariffs hits right where it hurts for builders. Canada produces much of the lumber used in our country’s stick-built, single-family homes, as well as roughly a quarter of the aluminum used in curtain walls and building facades. Mexico supplies much of the machinery and appliances used in apartments and offices, as well as finished goods and heating, ventilation and cooling (HVAC) supplies. And China also contributes manufactured goods, especially switchgear and other electrical equipment that’s vital to larger offices, buildings, and commercial warehouses and factories.
Projects in pre-construction, a phase during which designs are decided, can still make some alterations to decrease the use of steel or alter layouts to mitigate some of this increased cost. But there simply isn’t enough slack to alter the overall shift in costs, especially if these tariffs remain in place for months. Morningstar analysts predict a significant number of planned projects will be delayed or canceled.
Many suppliers tried to stockpile goods after the November election, in anticipation of the tariff threat. Brusuelas said orders for industrial supply materials from overseas spiked by $22 billion between December and January. But even that anticipatory buying can only go so far.
“Certain firms stocked up on materials and have clauses in their contracts for these issues,” said Nicholas Pantuliano, co-founder and chief operating officer of developers PTM Partners. “But it won’t change the fact that certain projects won’t happen, and more projects will go by the wayside. Even perceived cost increases will create palpitations throughout the industry.”
And more tariffs may be on the way. President Trump has threatened an additional 25% tariff on aluminum and steel, set to come online March 12. That would mean tariffs on aluminum from Canada, for instance, would total 50%. And trying to resuscitate domestic production by opening or reopening an aluminum smelter would take years, and require both substantial electrical power and a team of trained workers.
“It’s such a global market,” said Mike Putnam, head of delivery at Unispace, a global design and construction firm. “Everything is impacted by goods coming from overseas, and it’s hard to find a true domestic product.
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