Tariff Fears Raising Construction Costs

Uncertainty Over Tariffs and Immigration Policy Causes Construction Costs to Soar

Related Group CEO Jon Paul Pérez says contractors are already increasing prices by up to 20% to offset potential tariffs, a move that could lead to higher costs for new condos and homes.

President Donald Trump’s 25% tariffs on certain goods from Canada and Mexico, including steel and aluminum, are set to take effect on April 2, and even before that, uncertainty over tariffs and inflation is causing many contractors to raise real estate project costs.

"We’re seeing [subcontractors] throw an additional cushion into their numbers anticipating tariffs," Pérez said. "It could be as much as 20%, depending on what material they’re getting from another country."

Tariff Fears Drive Up Construction Costs

Pérez noted that the price hikes are driven by the anticipation of higher costs, rather than current levels, and that it’s unclear how the higher costs will be divided between contractor and developer.

"When you go through their numbers in detail and you start negotiating, you quickly find out they’re just kind of padding to protect themselves," he said.

As a result, tariff fears could add further upward pricing pressure on a housing market that’s already crippled by high prices and elevated mortgage rates.

The Impact on Homebuyers

According to a survey from the National Association of Home Builders, rising prices for construction materials could add $9,200 to the cost of a typical home.

Related Group’s Experience

Related Group is one of the largest and most prominent developers in the U.S., with more than 90 projects in various stages of development, including rentals, affordable housing units, mixed-use developments, and luxury condos. The company’s founder and chairman, Jorge Pérez, said that in addition to tariff concerns, the Trump administration’s crackdown on immigration could also drive up prices for developments, since the construction industry relies heavily on workers from overseas.

"There will absolutely be a cost effect in our industry, in particular the construction industry," he said. "Losing these people will have an inflationary effect."

High-End Market Remains Strong

Despite the uncertainty, the high-end of the real estate market remains strong, with a recent sale of two condo penthouses at Related’s new development on Fisher Island near South Beach, Miami, for a total of $150 million.

Middle Market Takes a Wait-and-See Approach

However, the "middle market" is taking a more cautious approach, with many buyers in the $1 million to $3 million range waiting to see how the tariffs and immigration policies play out.

Conclusion

The uncertainty surrounding tariffs and immigration policy is already having a significant impact on the construction industry, with contractors increasing prices to offset potential costs. As the market continues to evolve, it’s clear that homebuyers and developers alike will need to be prepared for the potential consequences of these changes.

Frequently Asked Questions

Q: What are the potential implications of tariffs on the construction industry?
A: Tariffs could lead to higher construction costs, which could be passed on to homebuyers, leading to increased prices for new condos and homes.

Q: How are contractors responding to tariff concerns?
A: Contractors are already increasing prices by up to 20% to offset potential tariffs, according to Related Group CEO Jon Paul Pérez.

Q: What is the impact of immigration policy changes on the construction industry?
A: The Trump administration’s crackdown on immigration could also drive up prices for developments, since the construction industry relies heavily on workers from overseas.