Trump’s tax tariffs on lumber, steel and aluminum may increase the cost of new housing.
In November of 2017, the US set final total tariffs for most Canadian softwood lumber producers at 20.8%. According to Aaron Terrazas, senior economist at Zillow, this caused the price of lumber to jump nearly 15% and added $6,000 to $10,000 to the cost of a newly built median-priced single family home. By contrast, the the National Association of Home Builders estimated that the cost of a new average multifamily unit would increase by just $478 as a result of the lumbar tariffs. This is because, on average, multifamily buildings tend to use less lumbar than single family residential homes for a single residence, however other tariffs will more heavily impact multifamily units.
Tariffs have also been imposed on steel and aluminum imports from Canada, Mexico and the European Union however these materials typically only represent between 0.5% to 1% of the cost to build a new single family home. On the other hand, multifamily apartment and condo buildings use significantly more steel and aluminum than lumbar. Therefore, buyers and renters of new multifamily units may see a more substantial increase in prices resulting from these tariffs.
Why the tariffs? White House officials intend to increase the domestic production of goods and services which will create more jobs and increase wages as well as ensure a fair trade-deal with foreign countries. Unfortunately, a number of economists and political leaders do not think this will come to fruition. According to the New York Times, a group of former Council of Economic Advisers chairman from both political parties wrote a letter to Mr. Trump urging him not to move ahead with steel tariffs, warning that “tariffs would raise costs for manufacturers, reduce employment in manufacturing, and increase prices for consumers.” Additionally, in a March survey of an expert panel of academic economists assembled by the University of Chicago’s Booth School of Business, not one economist agreed with the statement, “Imposing new U.S. tariffs on steel and aluminum will improve Americans’ welfare.” Fortunately, if there are negative consequences to economic growth, they are thought to be relatively minimal, and will only partially offset the positive gains made by the recent tax-cuts. Time will tell how the tariffs will impact GDP and in turn, the US housing market.