Tariffs, Timber, and Tenants: Navigating the New Landscape of Real Estate Development Risks

The U.S. construction material landscape is undergoing seismic shifts as tariffs reshape costs, supply chains, and developer resilience. For real estate investors, the key to profit lies in identifying firms that have insulated themselves from tariff volatility—particularly in affordable multifamily housing—and avoiding those overexposed to steel and copper. Let’s dissect the opportunities and risks.

The Tariff Double-Edged Sword

Canadian lumber: The 14.54% tariff remains in place, but the U.S. Department of Commerce is reviewing duties that could nearly double to 34.45% by late 2025. A pending Section 232 national security investigation could add further penalties. For builders reliant on Canadian softwood—30% of U.S. supply—the stakes are existential.

Mexican drywall: Exemptions under USMCA have kept gypsum imports tariff-free, avoiding a potential $7,500–$10,000 per-home cost spike. This stability makes drywall a rare bright spot in an otherwise turbulent sector.

The correlation between lumber prices and homebuilder stock volatility underscores the need for hedging.

Winners: Developers with Hedged Costs and Domestic Sourcing

The best plays are firms that:
1. Lock in long-term lumber contracts: Companies like Beazer Homes (BZH) and Lennar (LEN) have used forward purchasing to mitigate Canadian tariff risks.
2. Prioritize Mexican drywall: Developers focused on multifamily projects—where drywall is a major cost—gain an edge. Equity Residential (EQR) and Mid-America Apartment Communities (MAA) have shown resilience in markets with high material inflation.
3. Diversify supply chains: Builders like KB Home (KBH) are boosting domestic timber sourcing via partnerships with U.S. mills, reducing reliance on Canadian imports.

Losers: Overexposure to Steel and Copper

Steel’s 25% Section 232 tariffs, combined with retaliatory duties, create a perfect storm. For example:
- Mexico’s steel imports: Subject to 25% tariffs unless produced under strict regional rules.
- China’s steel: Facing a staggering 55% total tariffs (including IEEPA sanctions).

Firms like Crown Castle (CCI) (reliant on steel for telecom infrastructure) or W.P. Carey (WPC) (exposed to industrial properties) face margin pressures. Meanwhile, copper’s exemption from Section 232 is a lifeline—but its 10% universal tariff still complicates projects like high-end multifamily or data centers.

The Asymmetric Opportunity: Short-Term Plays and Long-Term Bets

Short-term (0–12 months):
- Buy hedged homebuilders: Focus on firms with locked-in material costs. Beazer Homes (BZH) and Lennar (LEN) have shown 15–20% stock outperformance in tariff-sensitive quarters.
- Short industrial REITs: Overweight positions in steel-dependent sectors could see declines as costs squeeze occupancy rates.

Long-term (1–3 years):
- Affordable multifamily: Demand for budget-friendly housing is soaring as inflation pinches homebuyers. Camden Property Trust (CPT) and American Homes 4 Rent (AMH) are well-positioned in markets with stable drywall and timber supplies.
- Insulated supply chains: Back TerraForm Power (TERP) (reliant on U.S.-sourced copper) or Brookfield Renewable (BEP) (diversified material sourcing).

Conclusion: Tariffs = A New Real Estate Darwinism

The era of “business as usual” in construction is over. Firms that have hedged their material costs, leaned into USMCA exemptions, or pivoted to domestic suppliers will dominate. Investors ignoring tariff dynamics risk overpaying for exposure to steel and copper volatility.

The path forward is clear: Favor hedged homebuilders and multifamily plays while avoiding industrial properties tied to tariff-hit inputs. This isn’t just about surviving cost shocks—it’s about thriving in them.

The data tells a story: When affordability dips, multifamily demand—and investor returns—soar.

Act now. The next wave of real estate winners is already building.