Trump’s Steel Tariffs Could Inflate Apartment Rents and Condo Prices
The U.S. housing market is already under strain due to a severe shortage of apartments, and President Trump’s newly imposed 25% tariffs on steel and aluminum imports could make the situation even worse. These tariffs are expected to drive up construction costs, particularly for mid- and high-rise buildings, which rely heavily on steel for framing and foundations. As a result, developers may be forced to pass these increased costs on to renters and condo buyers, leading to higher rents and purchase prices.
Higher Construction Costs Could Delay Projects and Reduce Affordability
The impact of the tariffs will be most pronounced in urban areas where high-rise construction is common. According to Omar Rihani, executive vice president at Project Management Advisors, the transition from wood-framed construction (common in low-density buildings) to steel-intensive concrete construction in taller buildings means that steel tariffs will disproportionately affect mid- and high-rise projects. While the exact cost increase is uncertain, Rihani predicts that construction costs for high-rise buildings could rise in the low single digits.
Developers may respond to these increased costs by delaying projects, hoping for price stabilization or domestic steel production increases. However, delaying construction is costly, as expenses like property taxes, insurance, and interest continue to accrue. In some cases, projects may be scrapped altogether, further exacerbating the housing shortage.
Apartment Construction Boom Ends Amid Rising Costs and Interest Rates
The apartment construction boom of recent years, fueled by high demand and low interest rates, has come to an end. Multifamily construction starts dropped to their lowest level in over a decade in 2023, as developers grapple with high interest rates, a glut of high-end apartments, and rising labor and material costs. The added burden of steel tariffs could make building new units even less attractive, leading to a decline in new housing supply just when it is needed most.
The Broader Impact of Tariffs on the Housing Market
The steel tariffs are part of a broader tariff environment that could further complicate the housing market. For example, Trump has also imposed 10% tariffs on Chinese goods, which are already raising construction costs for some homebuilders. Additionally, the administration has threatened to impose 25% tariffs on Canada and Mexico, which could increase the prices of essential building materials like Canadian lumber and Mexican gypsum (used for drywall).
The uncertainty surrounding these policies could disrupt supply chains and timelines for developers, even if the tariffs are eventually lifted or modified. This uncertainty, combined with the direct cost increases, could inflate building material prices and keep interest rates higher for longer, making it even harder for homebuilders to construct affordable housing.
Industry Calls for Policy Reversal
The homebuilding industry has urged President Trump to reverse course, arguing that the tariffs contradict his stated goal of reducing housing costs and addressing the nation’s housing affordability crisis. The National Association of Homebuilders (NAHB) has condemned the steel tariffs, pointing out that they will increase construction costs and make it harder to build the housing needed to ease the shortage.
Despite these concerns, some industry experts remain optimistic that strong demand for housing will keep development moving forward. David Steinbach, global chief investment officer at Hines, believes that the fundamental drivers of housing demand are strong enough to offset the impact of the tariffs. However, others warn that any increase in construction costs could undermine efforts to address the housing shortage and make housing less affordable for renters and buyers.
Conclusion: A Perfect Storm for Housing Affordability
The combination of higher steel tariffs, rising interest rates, and supply chain disruptions creates a perfect storm for housing affordability in the U.S. While some developers may stockpile materials or lock in prices to mitigate risk, the long-term impact of these tariffs could be severe. With the nation already grappling with a severe housing shortage, any policy that slows construction or increases costs could have far-reaching consequences for renters, buyers, and the broader economy.
