New Tariffs Set To Intensify Already Soaring Construction Prices, Have A Ripple Effect Across Real Estate Industry
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Beginning Friday, the U.S. will impose tariffs on steel and aluminum imports from allies Canada, Mexico and the European Union. The news sent a ripple of shock through the stock market as investors sold shares of major industrial manufacturers due to heightened fears of a coming trade war.
Mexico is already talking about striking back with tariffs on American flat steel, lamps and fruit and European Union leaders claim they could slap tariffs on $7.5B worth of U.S. exports in the coming weeks, the Wall Street Journal reports. The new tariffs were imposed at a time when the three trade partners were in talks to renegotiate the North American Free Trade Agreement, but experts posit that deal is less likely to occur now.
Levies on 25% of steel imports and 10% of aluminum imports could cause construction costs to rise modestly, particularly when it comes to the development of office and industrial high-rise assets, according to a CBRE report discussing the potential effects of President Donald Trump's proposed tariffs back in March.
“[Steel and aluminum tariffs are] likely to increase prices, but many developers will have bought their steel forward,” CBRE Global Chief Economist Richard Barkham said via email. “In addition, prices are already high and factored into appraisals.”
The construction industry is grappling with soaring materials prices and this move by the Trump administration could exacerbate that. Steel is one of the most common materials used to construct commercial buildings and it already accounts for roughly 16% of total building costs for a typical commercial project. As of March, some steel suppliers were already boosting prices for wide-flange steel shapes by $300 to $400/ton, and boosting medal stud bid prices by 3% to 5%, CBRE reports.
“[New tariffs] will affect residential and commercial construction input costs and put slight upward pressure on real estate prices. If the tariffs last, these increases will affect a range of industries and prices: cars, appliances, etc.,” Atlantic Council Director of Global Business and Economics Program Bart Oosterveld said.
Though new tariffs are not expected to slow the construction of projects already underway, Barkham said it “may give developers cause to reflect on whether to initiate new projects.”
“The larger the developer, the easier it will be for them given their negotiating position to secure a steady supply of steel at a reasonable price. Smaller developers may, one, not have that kind of negotiating position, and two, have a reduced ability to pass any cost increase on to their customer,” Oosterveld said. “I’m not sure where this issue ranks in comparison to other challenges developers face in the current economic environment, such as a shortage of skilled labor, so [it is] hard to comment on whether scheduling challenges will increase significantly across the board.”