The Impact of Tariffs on Home Construction and Renovation Costs

Rising Costs for Homebuyers and Builders

Shopping for a new home or planning a renovation? Be prepared to pay more. The Trump administration’s tariffs on imported goods from Canada, Mexico, and China are driving up the cost of building materials used in new residential construction and home remodeling projects. According to the National Association of Home Builders (NAHB), these tariffs could increase the cost of building a single-family home in the U.S. by $7,500 to $10,000. These additional costs are typically passed on to homebuyers in the form of higher prices, which could further dampen demand in an already sluggish housing market. Many builders are already offering incentives to attract buyers, making the timing of these hikes particularly challenging.

For instance, We Buy Houses in San Francisco, a company that purchases and renovates foreclosed homes, has increased prices on its refurbished properties by 7% to 12%. Despite stockpiling 62% more Canadian lumber than usual and saving $52,000 in costs, the company is still feeling the pinch. CEO Mamta Saini noted that the uncertainty surrounding the duration of these tariffs has made planning especially difficult.

Bad Timing for Builders

The implementation of these tariffs couldn’t have come at a worse time for the housing industry. This is typically the busiest season for home sales, but the prospect of a trade war has rattled the stock market and heightened economic concerns, causing many potential homebuyers to hesitate. Danielle Hale, chief economist at Realtor.com, explained that builders face limited options: they can either pass the higher costs on to consumers, leading to higher home prices, or use fewer materials, which could result in smaller homes.

Lumber prices have already surged, reaching $658.71 per thousand board feet on March 4, the highest level in over two years. Dana Schnipper, a partner at building materials supplier JC Ryan in New York, shared an example of how the tariffs are inflating costs. For an apartment complex project, the company sourced wooden doors and frames from Canada, but once the tariff takes effect, the remaining $75,000 worth of materials will incur an additional $19,000 in costs. After markup, the customer will owe $30,000 more than originally planned. Schnipper also expects American manufacturers to raise prices on steel components, suggesting that these price hikes are here to stay.

The Challenge of Uncertainty

The uncertainty surrounding the tariffs’ timing and scope is creating significant challenges for builders and consumers alike. Carl Reichardt, a homebuilding analyst at BTIG, noted that confusion about pricing and planning could have a chilling effect on the new-home market. If consumers and builders cannot plan effectively, it becomes difficult to set prices or make decisions about purchasing or building homes. Additionally, economic anxiety could deter potential buyers from committing to new homes, regardless of price.

Robert Dietz, the NAHB’s chief economist, warned that the tariffs’ uncertainty will likely lead to increased volatility in home sales and construction this year. While the full impact of the tariffs may not be felt immediately—given the time it takes to build a home—the effects are already being seen in higher material costs and cautious consumer behavior. At Slutsky Lumber in New York, co-owner Jonathan Falcon observed that fewer customers are preparing for spring projects, suggesting that people are cutting back on spending due to economic worries.

Sidestepping Tariffs Is Not Always an Option

For many builders and contractors, finding alternative materials to avoid the tariffs is not a viable solution. Bar Zakheim, owner of Better Place Design & Build in San Diego, explained that Canada remains the best source for lumber. By continuing to use imported lumber, Zakheim has been forced to raise his prices by about 15% compared to last year. He also reported an 8% decline in the number of jobs lined up, calling it a “slow, expensive year” for his business.

The tariffs’ impact extends beyond lumber. Mexican gypsum, used to make drywall, and a wide range of home components manufactured in Mexico and China, such as refrigerators and washing machines, are also subject to tariffs. Dent Johnson, president of True Value Hardware, warned that many products on hardware store shelves will eventually be affected, leading to higher prices for home improvement shoppers.

The Tariff Rollercoaster

The Trump administration has introduced a series of tariffs with varying effective dates, creating a complex and unpredictable landscape for builders and consumers. On March 6, the administration delayed a 25% tariff on certain imports from Mexico and Canada, including softwood lumber, by one month. However, a 20% tariff on imports from China is already in effect, and a 25% tariff on steel and aluminum—50% for Canadian imports—went into effect on March 12.

The NAHB estimates that the tariffs on Mexican and Canadian goods alone will increase the cost of imported construction materials by more than $3 billion. These hikes come on top of a 14.5% tariff on Canadian lumber previously imposed by the U.S., bringing the total tariff on Canadian lumber to 39.5%. President Trump has defended the tariffs as a way to reclaim wealth for the U.S., calling April 2—the original deadline for some tariffs—a “liberating day” for the country.

Despite the delays, the costs of building materials have already risen significantly. Since December 2020, these costs have increased by 34%, according to the NAHB. Builders rely heavily on imported materials, with about 7.3% of all products used in single-family home and apartment construction coming from abroad. Nearly a quarter of these imported materials are sourced from Canada and Mexico, which also supply 70% of the imports for two key construction materials: lumber and gypsum.

The Broader Economic Impact

The tariffs’ effects extend beyond the housing market, influencing the broader economy. Small businesses, in particular, are struggling to absorb the increased costs. Jonathan Falcon of Slutsky Lumber expressed concerns that smaller lumber yards like his will find it difficult to compete with larger companies, potentially forcing some out of business.

The uncertainty created by the tariffs is also affecting consumer behavior. With prices rising and economic confidence wavering, many homeowners and potential buyers are delaying their plans. This reluctance could have long-term implications for the housing market and the economy as a whole. As the situation continues to unfold, one thing is clear: the tariffs are introducing a new level of complexity and cost into the already challenging world of homebuilding and renovation.