How Will Tariffs Affect Real Estate? Their Impact on Housing Construction & Prices

A flurry of announcements related to tariffs have come down the pike over the last two months, with many expected to take effect on April 2, along with the possibility of further policy updates.

Tariffs will affect the real estate industry through increased costs for the materials that are used to build, maintain, and renovate homes and apartment properties.

The National Association of Homebuilders reports that building materials are already 34% more expensive than they were back in December 2020. Tariffs would further raise these prices, not only resulting in higher housing costs for homebuyers, renters, and rental property investors, but also preventing some new developments from penciling out, potentially worsening the housing shortage that’s ongoing in many parts of the U.S.

Propmodo also speculates that if we see another spike in rent prices due to rising housing costs, this could motivate localities to enact rent control policies or other tenant protections as they did in the wake of pandemic-era rent increases.

Also, higher costs for building materials will make it more expensive for property owners to maintain and renovate their homes, with access to materials like lumber, drywall, steel, aluminum, plastic pipes, and home appliances relying on imports from Canada, Mexico, and China. This would put further pressure on rental owners’ margins in a time when profitability is already a challenge, potentially motivating owners to raise rents, and putting the impetus on property managers to show the value they create through preventative property maintenance to keep costs at a minimum.

The Specific Impact of Canadian & Mexican Tariffs on Building Materials

When it comes to materials needed to build and renovate housing, overall, about 7% of residential construction materials are imported from other countries, the National Association of Home Builders says. However, they explain, we import around a third of our softwood lumber because the U.S. can’t produce enough on its own to meet the demand. Of those goods that are imported, about three-quarters of wood products (for example, lumber used for framing) come from Canada, while three-quarters of gypsum and lime products (used for drywall) come from Mexico, according to the NAHB.

Goods from China

For goods from China, the Wall Street Journal reports that 20% tariffs have so far been put into place. The two 10% tariffs imposed on February 3 and March 3 are in addition to tariffs of 10 to 25% that President Trump imposed during his first term on items such as electronics. From China, we import a number of building components, including steel, aluminum, and home appliances, according to the National Association of Home Builders.

China has retaliated with tariffs on many American goods, as well as restrictions on exports to certain American companies.

Goods from Europe

On March 11, the Trump administration announced 25% tariffs on the European Union’s steel and aluminum products, according to Bankrate. The EU has responded with tariffs on American steel and aluminum, as well as home appliances and both plastic and wood products, among other items. Further tariffs on the EU could be announced on April 2.

Tariffs on Steel & Aluminum

On February 10, Trump proposed a 25% tariff on steel and aluminum imports, which went into effect on March 12. The U.S. imports 80% of its aluminum and 17% of its steel, the Financial Times says. These tariffs could give a boost to U.S. metal companies, but will primarily raise costs for the construction industry, experts believe.

President Trump reportedly plans to announce additional tariffs on steel and aluminum on April 2, according to Bankrate.

Tariffs on Copper & Lumber

The Wall Street Journal reports that the Trump administration plans to place an additional 25% tariff on copper and lumber products imported from other countries, though further details haven’t yet been announced.

Also - The Impact of Tariffs on Interest Rates

Tariffs would likely cause the Fed to hold interest rates higher for longer, according to the Wall Street Journal. Tariffs can impact how consumers and businesses perceive the likelihood of prices rising in the future. As Cleveland Fed president Beth Hammack explains, this factors into the Fed’s interest rate decisions, because “if people expect inflation to be higher, they will respond and react differently, in a way that will drive more inflation.”

For example, WSJ explains, landlords may raise rents in anticipation of increased costs. In response to elevated housing costs, in the broader economy, workers may negotiate for higher raises, further heating up economic conditions and keeping interest rates high.