In order to set prices and plan for the future, businesses need clarity on trade policy. That’s why even the threat of President Donald Trump‘s tariffs could increase US housing costs.
Even if Trump ends up coming to a permanent deal with the US’ North American partners and rescinding his proposed levies, the uncertainty surrounding his policy choices could inflate building material costs by disrupting supply chains and homebuilder timelines, even as the US struggles to build its way out of a severe housing shortage.
“Uncertainty is an impediment to investment, particularly those involving those large capital outlays,” Matt Saunders, a senior VP at John Burns Research and Consulting, told Business Insider. “If there’s persistent uncertainty, that risk has to be priced into markets.”
Meanwhile, housing economists and homebuilder industry groups say the president’s new tariffs on Chinese imports will inflate homebuilding costs by raising prices for certain electronic appliances required in many homes.
Canada, Mexico, and China are the US’s top trading partners, and they provide a significant portion of the materials the construction industry needs. Canadian lumber, Mexican gypsum used for drywall, and Chinese electronics are among the most critical building materials impacted by the new and potential levies, industry experts said.
While Trump announced on Monday that he would pause 25% tariffs on Mexico and Canada for 30 days after reaching agreements with the countries involving enhanced border security, 10% tariffs on China went into effect just after midnight on Tuesday. Beijing retaliated by imposing tariffs on some US goods, including coal and gas, and announcing an antitrust investigation into Google.
Higher prices for imported building materials would push housing costs up and result in a slower rate of construction and fewer homes being built, compounding housing affordability issues, they said.
For example, as uncertainty around Trump’s trade moves persists, a Canadian lumber company could hold back on growing its capacity, Anirban Basu, chief economist at the construction industry trade group Associated Builders and Contractors, told Business Insider. This would further reduce supply and inflate consumer prices.
“Even if the tariffs are not implemented, as long as there’s the threat of them, it’s inflationary,” Basu said. “One of the things I hear from business leaders is this: all we want is certainty. Give us certainty about your zoning decisions. Give us certainty about your regulatory decisions. Whether it’s state, local, or federal, give us certainty.”
$40,000 more for the typical new home?
If the 25% tariffs on imports from Canada and Mexico go into effect after the temporary pause, in addition to the tariffs on Chinese imports, they would increase the cost of the average newly constructed home by an estimated $40,000 — about a 10% price hike, Basu said.
Basu estimates tariffs on lumber would raise the cost of building a typical new US home by $8,000 to $12,000. The US imports about 30% of its softwood lumber — used in the framing of most homes — from Canada, and lumber costs make up between 15 and 20% of the total cost of building a typical home, Saunders said. At the same time, tariffs on Chinese products like plumbing fixtures, appliances, windows, and doors would add about $8,000 to the cost of construction, while increased concrete and cement would add around $3,000.
“If you reduce supply at the time when you’re trying to increase construction — simple math, you’re going to make it more expensive and harder to source,” Brian Turmail, VP of public affairs at the industry group the Associated General Contractors of America, told Business Insider. “And if people can’t source it, then they’re going to put longer timelines in their bids.”
This is particularly challenging given that home-building materials are already 40% more expensive than they were pre-pandemic, Saunders added.
There’s historical precedent for price hikes as a result of tariffs. Trump’s 2018 tariffs on washing machines from China and his 2019 tariffs on Chinese furniture sent consumer prices for those products soaring, Saunders said.
The vast majority — 87% — of homebuilders said variability in materials costs would have a negative impact on their operations, according to a recent survey by research firm John Burns.
The National Association of Homebuilders, a major trade group, slammed Trump’s proposed tariffs on Saturday, saying they would do the “opposite” of the president’s promise to lower housing costs and boost the supply of homes.
“Tariffs on lumber and other building materials increase the cost of construction and discourage new development, and consumers end up paying for the tariffs in the form of higher home prices,” Carl Harris, chairman of the NAHB, said in a statement.
Basu believes tariffs could have a long-term inflationary impact as they could hurt smaller foreign suppliers and weaken industry supply chains.
“All of a sudden, industry capacity is constrained, it’s diminished, and that leads to more market power among those who survive in the industry, which leads to higher prices,” he said.
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