The Impact of Trade Tariffs on the Real Estate Industry in 2025

Construction costs are influenced by many factors: material availability, labor rates, design complexity, but few have the sweeping, industry-wide impact of trade tariffs. In 2025, new U.S. tariff measures on steel, aluminum, and lumber are reshaping the economics of construction, raising material costs and forcing developers and contractors to rethink how they plan and execute their projects.

But what’s behind these changes? And how can industry stakeholders adapt?

Whether you’re leading a high-rise development or managing a series of residential builds, understanding how these new tariffs affect cost structures is crucial to protecting project margins. In this article, we’ll break down the 2025 tariffs, explore how they’re disrupting material pricing and supply chains, and highlight strategies to mitigate their impact.

Understanding the Tariff Changes

On March 12, 2025, the U.S. implemented a 25% tariff on all imported steel and aluminum, ending previous exemptions for close trading partners like Canada and Mexico. The move, aimed at bolstering domestic metal production, will have cascading effects on downstream industries, construction foremost among them. In addition, tariffs on Canadian softwood lumber remain at 14.5%, but experts anticipate these may rise to as much as 27% or more by late 2025.

According to the U.S. Department of Commerce, the U.S. sources approximately 40% of its aluminum and 25% of its steel from Canada and 12% of its steel from Mexico. The shift to universal tariffs, therefore, affects a substantial share of supply, particularly for structural components in housing and commercial development.

Cost Implications for Developers

Construction material costs had stabilized somewhat in 2024, but the new tariffs are reversing that trend. Since December 2024, steel prices have increased steadily, driven by market anticipation of supply constraints. Similarly, framing lumber prices have jumped to $454 per 1,000 board feet, driven by uncertainty and ongoing tariff discussions with Canada.

Builders are already feeling the strain. According to the National Association of Home Builders (NAHB), tariff-related material inflation is adding an average of $9,200 per new single-family home. For multifamily or infrastructure projects, the added costs are magnified.

Projects Under Pressure

Not all developments will be equally impacted. Larger-scale projects are especially vulnerable due to their reliance on steel and aluminum frameworks, such as:

● High-rise commercial and residential towers

● Transportation infrastructure (roads, bridges, and rail)

● Government and public utility projects

On the residential side, smaller builders with tighter margins may be forced to delay or cancel projects altogether.

Developers looking to contain costs are now exploring alternative materials and methods. Some are pivoting to:

● Engineered wood and cross-laminated timber (CLT)

● Shipping container architecture

● Modular construction techniques

Each approach offers potential cost advantages, but they also come with design limitations or code compliance hurdles.

Navigating the Tariff Landscape

Strategic adaptation is key. Developers and contractors are responding in several ways:

1. Contract Adjustments: Builders are reviewing contracts for cost escalation and force majeure clauses. Owners may push back, but contractors increasingly need protection from rapid price swings.

2. Bulk Purchasing & Forward Contracts: Securing materials in advance or negotiating forward pricing agreements can hedge against further increases.

3. Domestic Sourcing: While U.S. mills ramp up production, availability remains a concern. Lead times are already stretching according to industry analysts.

4. Project Budget Reviews: Reassessing the viability of planned builds is becoming more common, particularly in steel-heavy projects.

Broader Market Outlook

Construction input costs remain 40% higher than in February 2020, even before these new tariffs. Small and mid-sized firms are especially exposed, as they often lack the capital reserves to absorb material price shocks.

The Bureau of Labor Statistics and Moody's Analytics now expect the effective U.S. tariff rate to reach 12% by Q2 2025, up from 8.1% in March. That could spell continued turbulence for developers throughout the year.

Conclusion

With tariff policies shifting and global trade tensions escalating, developers must stay agile. Rising costs for steel, aluminum, and lumber will squeeze margins and delay timelines, especially on larger or residentially sensitive projects. By reevaluating sourcing strategies, engaging in early procurement, and adapting designs, firms can weather the storm and potentially gain an edge as the industry adjusts.

As always, keeping a close eye on trade policy updates and working with experienced advisors can help mitigate risk. At Makaan Investment Group, we remain committed to helping our investors and partners navigate this dynamic landscape with clarity and confidence. Schedule a consultation today to discover tips on how you can effectively navigate the current real estate market as an investor.