Chinese Tariffs Aren't Expected To Take Bite Out Of Boston Building Boom
Boston isn’t panicking over a trade war with China.
“Any potential impediment to the availability of the raw materials to build buildings is a challenge for our market today. Tariffs add to the challenge,” Colliers Managing Director of Client Services Aaron Jodka said. “That said, it’s still early. The deals still make sense to justify construction.”
Construction cranes are constantly going up from the Seaport to Watertown, and several high-profile projects like One Congress and a planned 690-foot skyscraper over South Station have yet to break ground. President Donald Trump is working toward a plan to hit all Chinese imports to the U.S. with a 25% tariff, which would include many materials used on projects across Boston.
Trump raised tariffs on $200B worth of Chinese goods last week in the ongoing trade war between the two countries. Construction costs are already sky-high in Boston and increase between 6% and 8% annually, Jodka said. Adding a 25% premium to a major component of project materials would all but certainly make some developers reconsider moving forward on a project.
But many in Boston’s real estate and lending circles that Bisnow reached out to said it is too early to sing a swan song for construction and development in Boston.
“It would not surprise me if in two weeks the whole matter is resolved as neither party involved can afford a trade war,” Mount Vernon Co. Chairman and founder Bruce Percelay said to Bisnow last week. “I also suspect we may end up on top after all is said and done.”
Construction costs have been consistently high in Boston, but the back-and-forth nature of trade talks with China and other countries has many industry experts predicting any tariff impact to be short-lived. Trump had previously levied tariffs on industrial metals from Canada and Mexico, but the U.S. lifted those Friday as part of bargaining for a greater North American trade deal.
California imported $161B of Chinese goods in 2018, according to the U.S. Census Bureau. Washington imported just over $16B in goods from China. Massachusetts imported a little over $5B.
The tariffs on Chinese steel may have garnered the most attention, but Valhouli said the real impact on pricing has come from tariffs on Canadian plywood and lumber.
Many multifamily developments in Boston are now built with wood in lieu of steel in what was originally a strategy to bring costs down. But the Trump administration levied a 20% tax on Canadian softwood, which has had a larger impact on home prices. The tariff has increased single-family home prices by $9K and multifamily units by $3K, according to the National Association of Home Builders.
“While the China tariffs on metals were highly publicized, the tariff on softwood lumber from Canada had a larger effect on housing prices,” Valhouli said.
The tariffs, whether on Chinese or Canadian goods, are still only a piece of Boston’s greater development conversation. Land prices and labor costs remain persistently high, while most view tariffs as temporary measures that will go away when trade deals with respective countries are reached.
“As of right now, I wouldn’t expect the recent tariff back-and-forth to have a marked impact on the development pipeline in Boston,” Jodka said. “In a month and a half, we could see the tariffs gone.”