Tariffs and Real Estate: Navigating Rising Costs and Market Uncertainty

Admin
May 19
3 min read

Trade policy may not be the first thing that comes to mind when discussing real estate investments, but its ripple effects are hard to ignore. As global trade tensions continue to evolve, particularly between the U.S. and key partners like China, tariffs have become a powerful lever of economic influence.

And for real estate investors, these measures are reshaping everything from construction costs to investment timelines.

In this article, we explore how recent and ongoing tariff decisions are influencing the real estate sector, from rising development costs and changing rental market dynamics to the hesitancy now facing international investors.

A Quick Look at Recent Tariff Activity

Recently, the U.S. has imposed substantial tariffs on Chinese imports, citing national security concerns and efforts to level the global trade playing field. Many of these goods fall under Section 301 of the Trade Expansion Act of 1962, and include a wide range of materials essential to real estate development—such as steel, aluminum, lumber, electrical equipment, and finished products like flooring, fixtures, and wall panels.

In response, China has imposed its own tariffs on U.S. exports, including materials like wood flooring, bricks, and pipes. These tit-for-tat actions have disrupted supply chains, created cost inflation, and made developers rethink sourcing strategies.

Construction Costs Are Rising

Perhaps the most immediate and visible impact of tariffs has been on construction costs. With materials like steel and aluminum facing import duties as high as 145%, developers are paying significantly more for core building supplies. According to the National Association of Home Builders (NAHB), tariffs have added approximately $9,200 to the cost of building an average single-family home.

These added costs are affecting project feasibility. Some developers are delaying projects, reducing scope, or exploring alternative materials, which are moves that could slow down construction pipelines and exacerbate existing housing shortages.

Pressure on Housing Affordability and Rental Supply

As construction costs rise, affordability becomes an even bigger concern. Tariff-related price increases are contributing to higher home prices, pushing more would-be buyers into the rental market. And while multifamily development surged in previous years, ongoing tariff pressures and labor shortages have started to dampen new supply.

At the same time, high mortgage rates and economic uncertainty are encouraging more renters to stay put, further tightening rental supply in key markets. The result? A growing demand for rental units, and a strong outlook for well-positioned multifamily investments.

Impact on Commercial Real Estate and Global Investment

Tariffs also impact commercial real estate, particularly in the industrial and logistics sectors which depend heavily on global supply chains. Higher material costs, construction delays, and increased operational expenses are making some deals less attractive to both domestic and international investors.

For foreign investors, trade tensions may signal added geopolitical risk, making them more cautious about entering or expanding in the U.S. market. Projects underwritten before tariffs took effect may no longer meet return expectations, leading to increased scrutiny and slower decision-making across the board.

Trade Policy and Mortgage Rates

Notably, the broader economic implications of trade conflicts also influence mortgage rates. Concerns about slower economic growth have driven investors toward safer assets like U.S. Treasury bonds, resulting in lower yields and modest declines in mortgage rates.

However, these rate reductions may not fully offset rising construction and material costs. If tariffs expand or economic conditions worsen, real estate could face a perfect storm of slowed growth, affordability strain, and investor hesitancy.

Adaptive Strategies for Real Estate Investors

While the long-term trajectory of trade policy remains uncertain, there are steps real estate investors can take to remain agile:

● Adjust Underwriting Assumptions: Account for higher construction costs and longer project timelines when evaluating new deals.

● Diversify Supply Chains: Explore domestic and alternative international suppliers to reduce dependence on tariffed imports.

● Prioritize Resilient Asset Classes: Focus on multifamily and rental housing, which continue to show strong demand even amid cost pressures.

● Explore Tax Mitigation Strategies: Take advantage of tools like cost segregation, energy efficiency incentives, or 179D deductions to offset rising expenses and maintain profitability.

Conclusion

Trade tariffs may be rooted in international politics, but their effects hit close to home. From elevated construction costs and tighter rental supply to shifting investor sentiment and global uncertainty, tariffs are reshaping the real estate landscape in complex ways.

For investors, staying ahead of these changes means staying informed and adaptable. By recalibrating strategies, reevaluating assumptions, and partnering with experienced investment groups, it’s possible to navigate these challenges while continuing to grow and protect your portfolio.