Tariffs Are Skyrocketing Construction Costs: What You Need to Know!

Ladies and gentlemen, buckle up! The construction industry is in for a wild ride as tariffs on imported goods from Canada, Mexico, and China are sending costs through the roof. We're talking about increases of up to 20%! Jon Paul Pérez, the CEO of Related Group, just dropped a bombshell: contractors are already hiking prices to offset potential tariffs. This is a game-changer, folks, and you need to be ready!



First things first, let's talk about the impact on construction materials. Softwood lumber, gypsum, steel, and aluminum—these are the building blocks of any construction project, and they're all getting hit hard by these tariffs. The U.S. imported $8.5 billion worth of sawmill and wood products in 2023, with nearly 70% coming from Canada. And guess what? These imports are already subject to a 14.5% antidumping and countervailing duties (AD/CVD) tariff. Now, with the new tariffs, the cost of Canadian lumber is going to skyrocket by an additional 25%, bringing the total tariff to 39.5%. That's a whopping increase, folks!

And it's not just lumber. Gypsum, which is essential for drywall, is also taking a hit. The U.S. imported $456 million worth of lime and gypsum products in 2023, with 71% originating from Mexico. The new 25% tariff on Mexican goods will drive up the cost of gypsum, making it even more expensive to build.

But wait, there's more! Steel and aluminum are also feeling the pinch. The U.S. imports about 40% of its aluminum and 25% of its steel from Canada, and another 12% of its steel from Mexico. The 25% tariff on steel and aluminum imports will drive up the cost of these materials, which are widely used in construction for building structures, appliances, and electrical components.

So, what does this mean for construction costs? The National Association of Home Builders (NAHB) estimates that the tariffs will raise the costs that go into building a single-family home in the U.S. by $7,500 to $10,000. These increased costs are typically passed along to the homebuyer in the form of higher prices, which could hurt demand in an already sluggish housing market.

But it's not all doom and gloom, folks. Construction companies and developers are fighting back with some clever strategies. Related Group CEO Jon Paul Pérez mentioned that contractors bidding on seven projects are raising prices by as much as 20% to account for anticipated tariffs. This strategy aims to protect contractors from the financial burden of higher material costs, but it also risks passing on these increased costs to consumers, potentially affecting demand in an already high-priced housing market.

Another strategy is to stockpile materials before tariffs take effect. For example, We Buy Houses in San Florida increased prices on its refurbished properties by 7% to 12% despite saving $52,000 in costs by stockpiling 62% more Canadian lumber than usual. CEO Mamta Saini highlighted the challenge, stating, "The uncertainty of how long these tariffs will continue has been the most challenging aspect of our planning." This approach can provide short-term relief but may not be sustainable in the long term, especially if tariffs remain in place or if material supplies become scarce.

Additionally, some companies are exploring alternative suppliers or routes to avoid higher costs. However, this is not always feasible, as certain materials, like lumber from Canada, remain the best source. Bar Zakheim, owner of Better Place Design & Build, had to raise prices by about 15% compared to a year ago and has 8% fewer jobs lined up due to the tariffs. He noted, "I’m not about to go out of business, but it’s looking to be a slow, expensive year for us." This indicates that while alternative sourcing can help, it may not fully mitigate the financial impact, especially for specialized materials.

In the long term, these strategies may not be sufficient to fully offset the financial impact of tariffs. The National Association of Home Builders (NAHB) estimates that tariffs could raise the cost of building a single-family home by $7,500 to $10,000. This increase is likely to be passed on to consumers, further straining an already sluggish housing market. The NAHB has been actively seeking tariff exemptions for building materials and engaging with policymakers to reduce regulatory burdens, but the effectiveness of these efforts remains to be seen.

So, what's the bottom line, folks? Tariffs are driving up construction costs, and it's going to be a bumpy ride for the industry. But don't despair—there are strategies to mitigate the impact, and the fight is far from over. Stay tuned for more updates, and remember: in the world of construction, it's all about adapting and overcoming!