The potential implementation of President Trump's tariffs on building materials from Canada, Mexico, and China could significantly increase the cost of new homes in the US, exacerbating an already severe housing shortage. Even the threat of tariffs is causing uncertainty in the market, leading to higher prices for materials and construction delays.
Business es require clarity in trade policy to effectively set prices and plan for the future. Even the threat of President Donald Trump's tariffs can have a ripple effect on US housing costs. Uncertainty surrounding his policy decisions, even if he ultimately reaches a permanent deal with US North American partners and rescinds the proposed tariffs, can inflate building material costs by disrupting supply chains and homebuilder timelines.
This issue arises as the US grapples with a severe housing shortage. 'Uncertainty is an impediment to investment, particularly those involving 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 point out that the president's new tariffs on Chinese imports will contribute to inflationary pressure in homebuilding by increasing prices for essential electronic appliances commonly found in homes. Canada, Mexico, and China are the US's top trading partners, providing a substantial portion of the materials crucial to the construction industry. Canadian lumber, Mexican gypsum used in drywall, and Chinese electronics are among the most critical building materials impacted by the new and potential levies, industry experts emphasize.While Trump announced on Monday a 30-day pause on 25% tariffs on Mexico and Canada after reaching agreements with these countries involving enhanced border security, 10% tariffs on China went into effect on Tuesday. Beijing retaliated by imposing tariffs on some US goods, including coal and gas, and announced an antitrust investigation into Google. Economists warn that higher prices for imported building materials will push housing costs upward, resulting in a slower rate of construction and fewer homes being built, further exacerbating the existing housing affordability crisis.For instance, amidst the continued uncertainty surrounding Trump's trade moves, a Canadian lumber company might hold back on expanding its capacity, Anirban Basu, chief economist at the Associated Builders and Contractors, explained to 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 stated. '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.'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 estimates. Basu calculates that tariffs on lumber alone would raise the cost of building a typical new US home by $8,000 to $12,000. The US imports approximately 30% of its softwood lumber — used in the framing of most homes — from Canada, and lumber costs account for between 15 and 20% of the total cost of building a typical home, Saunders noted. Simultaneously, tariffs on Chinese products such as plumbing fixtures, appliances, windows, and doors would add around $8,000 to the construction cost, while increased concrete and cement would add roughly $3,000.'If you reduce supply at a 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 Associated General Contractors of America, shared with Business Insider. 'And if people can't source it, then they're going to put longer timelines in their bids.' This situation is particularly challenging given that home-building materials are already 40% more expensive than they were before the pandemic, Saunders added.There is historical precedent for price hikes resulting from tariffs. Trump's 2018 tariffs on washing machines from China and his 2019 tariffs on Chinese furniture caused consumer prices for these products to skyrocket, Saunders pointed out. A recent survey by research firm John Burns revealed that the vast majority — 87% — of homebuilders stated that variability in materials costs would negatively impact their operations.The National Association of Homebuilders, a prominent trade group, strongly criticized Trump's proposed tariffs on Saturday, arguing that they would have the 'opposite' effect of the president's stated aim 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 harm smaller foreign suppliers and weaken industry supply chains.
Economics Housing TARIFFS HOUSING COSTS CONSTRUCTION INDUSTRY TRADE POLICY INFLATION SUPPLY CHAIN HOMEBUILDERS
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