Tariffs are Creating a Perfect Storm for Builders

The California Building Industry Association (CBIA) is calling the Trump Administration tariffs the "perfect storm" for the state's already troubled housing industry.  The Association says tariffs, which have impacted the price of appliances, certain countertops, some items made of lumber, steel and aluminum, and miscellaneous other items, have driven up the cost of an average-size new home in California by $20,000 to $30,000. 

The concern of the California organization was echoed by David Logan, the National Association of Home Builders' (NAHB's) director of Tax and Trade who said, "All the stars aligned for the worst outcome." He warns that the long-term effects of these tariffs could choke off new construction, and they're leading builders to focus on catering to people with higher incomes or encouraging those with moderate incomes to build with less space. "I've heard of instances when projects have had to stop because of pricing changes in the middle of a project," he said.

There have been several rounds of tariffs over the last two years.  The first, placed on Canadian and Mexican steel and lumber imports, were lifted last May. More recently they have been affecting goods coming from China.  Last September, after the White House announced a decision to impose tariffs on an additional $200 million in Chinese imports, then NAHB chair Randy Noel said, "President Trump's decision to impose 10 percent tariffs on $200 billion worth of Chinese imports, including $10 billion of goods used by the residential construction sector, could have major ramifications for the housing industry. With housing costs on the rise, this action translates into a tax increase on housing that will rise even more significantly on Jan. 1 when the tariff rate jumps to 25 percent.

Noel's statement continued, "With America facing a housing affordability crisis, it is counterproductive to enact policies that will needlessly drive up the cost of housing. We respectfully urge the administration to change course and work to resolve these trade disputes in a manner that won't harm American businesses and consumers."

Kate Irby writes in The Sacramento Bee that the industry was already struggling because of increased costs including rising fees from local governments and the costs and shortage of buildable land and labor.  She notes that additional new tariffs are going into effect this week (although they may have been postponed - getting difficult to keep track). They won't directly affect housing products, she says, but the builders worry that the costs to consumers will make it more difficult for people to save up money for a down payment.

NAHB estimates the tariffs will ultimately cost home buyers $2.5 billion per year nationwide. Builders facing the new costs must either absorb the costs, find other materials to use in their product, or pass the charges on to new home buyers and owners seeking to improve or remodel their homes.

The administration has billed the tariffs as necessary to fight unfair actions by China, including intellectual property theft and the President has repeatedly insisted that China is paying the tariffs, although it is generally accepted that it is businesses and ultimately their customers who pay the bill.

Tariffs are only a small part of the costs of building, but Dan Dunmoyer, president of the CBIA told Irby that increasing the cost of a $500,000 home in the state (where the median price was $611,000 in June) by even $10,000 would price out thousands of families. "So, it is a tipping point for those families," Dunmoyer said. "But so many other things have pushed it up to that point," he added, citing the expensive and unregulated community fees assessed by local governments.

Modesto California homebuilder told Irby that the tariffs on individual items such as countertops "really add up." He says his company has stopped offering some products, such as quartz, because of the tariffs and has stopped buying cabinets from China, which nearly doubled in price, and is now buying them from Mexico.

The builder said the inflationary tendencies of tariffs have caused some distributors to increase costs in anticipation that a tariff might happen.  "Then you're trying to get loans when you don't know what the cost will be in a few months," Fitzpatrick said. "I'd say the uncertainty is costing more than the actual tariffs."