March 19, 2025 | Ella Krygiel, BOMA International
President Trump’s tariffs on imported goods from Canada, Mexico and China are already driving up the cost of building materials, raising concerns within the industrial real estate sector. The 25% tariffs on steel and aluminum, in particular, are a major point of worry. According to the National Association of Home Builders, “Proposed new tariffs on China, Canada and Mexico are projected to raise the cost of imported construction materials by more than $3 billion.”
Given the rising costs associated with these tariffs, Danny Harrington, Vice President of Strategic Operations, Project Management Advisors, Inc. encourages developers and financial institutions to use this opportunity to be creative and refine their risk assessments. “Financing strategies now will likely either transfer additional costs to tenants and buyers or could even halt some projects entirely,” Harrington says. “We are seeing some developers seek different financing structures, such as JV or equity partnerships.”
Bill Kramer, a real estate attorney at Brinkley Morgan, agrees with this approach. He notes that changing cost structures will likely lead developers to incorporate more flexibility into their planning, explore alternative sourcing strategies and adopt a cautious approach to new projects. “Since long-term predictability is a key factor in decision-making, many are closely monitoring policy developments to determine the best course of action,” Kramer says.
While the steep tariffs are a strategy “celebrated by domestic steel producers,” according to NPR, the Coalition of American Metal Manufacturers and Users argues that the U.S. simply “does not produce enough steel or aluminum to meet domestic demand, and new production facilities cannot be built instantly.”
With this in mind, Harrington and Kramer recommend turning to alternative materials such as recycled steel and experimenting with 3D printing as an anticipated long-term trend. Harrington also suggests “bulk purchasing” and getting involved with “deregulation policies that relax building codes and zoning restrictions” to help offset some cost pressures.
Kramer discusses other materials to consider. Wood for studs, for example, could be a possibility, however, he warns about the repercussions of choosing this path since “the industry is trying to move away from wood in light of the recent wildfires.” Cement and concrete are other possibilities, Kramer mentioned, “particularly used in conjunction with 3D printers, but that technology is very new and untested.”
Although Precedence Research predicts the 3D printing market will expand to $98.31 billion by 2032, given these tariffs, other methods like 3D printing construction materials might need to be considered. Nevertheless, that transition may take some time.
Harrington notes that developers and financial institutions are focused on securing long-term supply contracts and conducting more stress tests than usual to account for price spikes and labor shortages. Harrington provides a detailed breakdown of the impact: “The estimated $10,000 increase per single-family home due to lumber tariffs serves as a reference point for multifamily developments. It translates to a rise in costs of approximately 15% to 20%.”
Given President Trump’s previous tariffs on steel and aluminum in 2018, Reuters reviews past impacts to predict future outcomes:
- Prices rose – at first.
In President Trump’s first term in 2018, Reuters reported that U.S. aluminum prices began to fall more slowly than they had risen, and U.S. steel did not return to its pre-tariff price until January 2019. Concerns surrounding the recent tariff announcements are now focused on the housing shortage. Harrington explains: “The long-term impact on our ability to address the existing housing shortage is likely to be massive, as the costs and reduced labor supply will likely discourage affordable housing development, which already operates on pretty thin margins. This will worsen housing affordability issues, especially in regions like New York and California.” Project Management Advisors, Inc. also anticipates that the 12-month lag in ramping up domestic production will create a temporary supply shortage and drive prices even higher.
- Metal production picked up, but higher costs slowed other industries.
William Hauk, Economics Professor, University of South Carolina mentioned “domestic production capacity [of metal production] takes time and capital.” As a result, Harrington predicts that “the increased expenses will likely be passed on to consumers, which will only further inflate overall project budgets.” Echoing off this, Kramer notes that these “persistent tariffs on key construction materials will significantly increase development costs, potentially slowing down new projects and exacerbating existing challenges in the real estate industry.”
- Job creation was a mixed bag.
According to Reuters, while the 2018 tariffs on metal imports did contribute to the increase of jobs in the metal production industry, it was short-lived. In addition, a 2019 Federal Reserve study determined that “higher input costs from the 2018 tariffs reduced manufacturing jobs.” Harrington believes that “mass deportation policies could result in labor shortages, which will increase competition for skilled labor, drive up wages and further impact project timelines and costs.”
With these projections in mind, Kramer argues that “the biggest challenge right now is uncertainty. Without a clear picture of the tariff situation, it’s difficult for businesses to accurately plan for future needs and timelines.” As we look ahead – and wait for more tariff announcements from President Trump on April 2 (possibly on cars, NPR reports) – we’ll keep reading tea leaves. “All businesses need to be able to predict future needs, costs, and revenues, which is impossible until we have a clearer picture of the tariff situation,” Kramer says.
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