Tariffs would impact housing, but experts split on severity

The Trump administration's now-delayed plan to impose tariffs on Canada and Mexico could push the cost of newly constructed homes upwards.

President Trump announced that 25% tariffs would be imposed on imports from Canada and Mexico starting Feb. 4. However, Monday countries received a one-month stay after deals were reached regarding border security and other measures.

Should the tariffs be enacted, building materials imported such as Canadian lumber and Mexican gypsum would become more expensive, and that change in price will be passed over to homebuyers, industry stakeholders say.

This could also slow the surge in sales of newly built homes, which have been outpacing the existing-home market. With the lock-in effect limiting the supply of existing homes, prospective buyers have increasingly turned to new construction, driving nearly two years of continuous growth in that sector.

Some have argued that tariffs could push homeownership even further out of reach for some prospective buyers, a situation Trump vowed to address. 

In late January, the president signed an executive order that called for efforts to lower housing costs and increase housing supply. The National Association of Home Builders, which urged Trump to exempt building materials, warned that duties on Canadian and Mexican goods could have the opposite effect, raising construction costs and harming affordability. 

"Tariffs on lumber and other building materials increase the cost of construction and discourage new development, and consumers end up paying for the tariffs in the form of higher home prices," the trade group said."NAHB urges the administration to reconsider this action on tariffs…"

Bill Dallas, former CEO of Finance of America, said the administration's "lack of focus on housing is alarming." He added that tariffs are inflationary and as a result, long-term interest rates might rise a bit.  

"Canadian tariffs on lumber could drive new construction costs higher and that could affect housing prices," Dallas wrote in an email.

Certain types of softwood lumber, including Western SPF [spruce, pine, and fir] 2x10 and Green Douglas fir 2x10, increased by 63.2% and 53.6% throughout 2024, respectively, per NAHB.

The possible 25% tariff on Canadian lumber would be in addition to an effective 14.5% duty rate already in place, pushing overall lumber tariffs up to nearly 40%, the builder trade group added.

Kevin Brungardt, co-owner of SavAlex Homes, thinks even if tariffs do cause short-term pressure housing affordability, other variables "like energy policy, local regulations and labor supply can either offset or exacerbate those impacts."

"I do think the tariffs are part of a broader strategy to negotiate better trade deals and force changes in certain industries, kind of as evidenced by today's 30 day pause on tariffs, somewhat of a compromise with Mexico," Brungardt said. "And if that's the case, it could lead to more of a temporary impact on housing costs. But as a developer, I think there are other levers that have equal or more impact on housing affordability that the administration is talking about."

The president has previously pointed out that regulatory requirements accounted for 25% of the cost of constructing a new home.

Meanwhile, Alaina Money-Garman, founder of Garman Homes, said that while tariffs will have an impact on cost, she's more concerned about how immigration policies will adversely impact housing. 

"Our labor force will suffer and scarcity of labor will impact prices even more significantly than tariffs," she wrote in an email. "Tariffs will be significant, make no mistake. But labor shortages are far more fearsome for home prices and the time it takes to build. The longer it takes, the more we spend, the more the consumer absorbs."