As new tariff policies unfold, the real estate industry is assessing their economic impact on development costs, timelines, and investment strategies while positioning for long-term stability in a changing market.
On April 2, 2025, President Donald Trump introduced a 10% baseline tariff on all U.S. imports alongside higher country-specific “retaliatory” tariffs. Although key construction materials like steel and aluminum—already subject to 25% tariffs—were exempt, global supply chain disruptions continue challenging developers and builders as they brace for future headwinds.
On April 9, the administration paused reciprocal tariffs for 90 days for all countries except China, where tariffs rose to 125%, leaving developers and investors uncertain about material availability, pricing, and delivery schedules amid ongoing trade negotiations. As the 2025 tariff landscape evolves, the real estate industry can monitor and prepare for key impacts by implementing proactive risk management strategies to navigate uncertainty.
How Has the Real Estate Industry Reacted So Far?
The National Association of Home Builders (NAHB) reports that about 7% of materials used for new residential projects last year were imported, raising concerns as tariffs drive up costs. Since construction materials typically account for 50-60% of the total costs of real estate projects, price fluctuations significantly impact budgets, timelines, financing, and investor confidence. Following the announcement on April 2, stock market shares of major homebuilders declined sharply, reflecting investor concerns about escalating costs and potential project delays.
Commercial real estate stakeholders, particularly in the industrial and retail sectors, are preparing for decreased leasing demand as consumer spending declines. Builders may also encounter increased borrowing costs due to rising mortgage rates and difficulties securing materials in a competitive market. While the 90-day pause could present an opportunity to reassess budgets, renegotiate contracts, or explore alternative suppliers, ongoing volatility has significantly diminished project confidence among investors and developers.
Rising Material Costs
Although the U.S. primarily sources steel and aluminum from Canada and Mexico (exempted under the USMCA), China’s role as the world’s largest manufacturer of construction materials likely means that tariffs will disrupt supply chains globally. The existing 25% tariff on steel and aluminum will likely continue to increase expenses for key structural components, while the Chinese tariff impacts electrical fixtures and plumbing materials, straining budgets across real estate projects.
Planning Challenges
The tariffs have already created price volatility, making it more challenging to predict costs and plan budgets for projects. This uncertainty has resulted in more cautious bidding and reduced development plans. Construction delays, which were already a concern due to supply chain disruptions, are likely to worsen, complicating long-term planning and potentially causing developers to delay projects or increase prices.
Housing Affordability
Tariffs are likely to raise material costs for a typical home, increasing pressure on housing affordability. Supply chain disruptions, particularly for components sourced from China, have caused further delays, decreasing housing inventory and placing additional pressure on prices in markets already experiencing all-time highs. The housing market faces further challenges from rising mortgage rates, making homeownership less attainable, especially for first-time buyers.
Commercial Market Disruptions
In commercial real estate, industrial and retail properties face risks from their sensitivity to consumer spending trends. Large industrial occupiers are likely to delay leasing, while retail developments slow down due to weakening consumer spending. Multifamily, office, and hotel markets see slower growth as secondary effects, though the office sector could continue to gain from return-to-office (RTO) trends.
Practical Strategies for Real Estate Stakeholders
To navigate these tariff-driven challenges, real estate professionals can adopt the following strategies:
1. Optimize Material Procurement: Leverage bulk purchasing, explore alternative suppliers, and shift toward raw materials for in-house assembly to control costs. Just-in-time delivery can minimize on-site storage and reduce waste, while the 90-day tariff pause offers a window to diversify beyond high-tariff zones.
2. Enhance Inventory Management: Adopt lean construction principles and invest in tools to track material usage and monitor stock levels, preventing waste and improving efficiency.
3. Strengthen Financial Oversight: Use cash flow forecasts and project budgets to identify potential issues proactively. These tools can help negotiate favorable contract terms, optimize resource use, and ensure timely payments to maintain liquidity amidst tariff volatility and rising borrowing costs.
4. Incorporate Contractual Protections: Include escalation clauses to allow for price adjustments based on market fluctuations, ensuring alignment with subcontractors to manage cost increases.
5. Monitor Market Trends and Opportunities: Stay informed about tariff developments and mortgage rate trends and their impact on consumer spending. For commercial real estate, tracking RTO trends can uncover opportunities in the office sector, providing a buffer against broader market slowdowns.
Despite exemptions for USMCA goods and a 90-day pause on most reciprocal tariffs, rising costs, planning difficulties, and affordability pressures will continue challenging residential and commercial markets, especially for smaller builders.
As policies and negotiations evolve, much remains to be uncovered about the long-term effects of tariffs on the real estate industry. Adaptable developers can mitigate the impact on their operations by staying abreast of the latest policy changes and creating risk management and resilience strategies. For more personalized advice on how these changes impact your real estate business, contact Evan Fox, Partner and Real Estate Tax Leader, or a trusted Grassi Advisor.
