Impact of Tariffs on Construction Costs

Recent discussions about new tariffs on imports have introduced significant uncertainty for builders and real estate developers in Southern California, especially in areas recovering from January’s wildfires. The ambiguity surrounding which materials will be affected and the timing of these tariffs complicates budgeting for construction projects.

Many contractors express frustration as they attempt to forecast costs for essential construction materials and appliances, including stoves and air conditioners. Currently, materials sourced from China are subject to a staggering 145% duty rate, pushing prices higher for consumers.

Quick Decisions Amidst Market Volatility

Contractors are compelled to make rapid purchasing decisions on crucial items like windows and plumbing fixtures to mitigate potential price increases. “We’re padding a 5% to 10% contingency for what we’re calling ‘market volatility’ into the budget,” stated Cory Singer, a contractor involved in numerous rebuilding projects in Pacific Palisades.

Due to supply chain constraints and rising material prices, some builders are even considering storage options for materials to protect against future cost increases.

Concerns from Nonprofit Organizations

The implications of tariffs are striking nonprofits as well. Bryan Wong, CEO of San Gabriel Valley Habitat for Humanity, describes the current situation as daunting. “I don’t think there’s a single person out there alive who thinks we’re done with this conversation,” he remarked concerning the evolving list of tariffs. Wong’s organization is already working with low-income homeowners navigating the rebuilding process.

Broader Economic Implications

The construction industry is experiencing a combination of pressures. Anirban Basu, chief economist for the Associated Builders and Contractors, noted that while the economic outlook appeared strong earlier this year, current tariff situations introduce a layer of anxiety. “Construction makes outsized use of foreign-born workers,” Basu added, signaling additional concerns related to labor availability due to immigration policies.

As the situation evolves, business owners face challenges in planning ahead. Alon Kraft, COO of Dedeaux Properties, highlighted that the uncertainty around tariffs is prompting many potential tenants to stall their leasing decisions. “Real estate doesn’t react at the speed of the stock market,” noted Kraft, emphasizing the cautious nature of the industry in light of fluctuating economic conditions.

Future of Home Construction

Despite the concerns surrounding tariffs, builders assert that the current pricing issues are not insurmountable in the context of wildfire recovery. Local developments and regulatory hurdles often play a more significant role than material costs. According to the National Association of Home Builders (NAHB), around $14 billion of the $204 billion in goods used for new residential constructions in 2024 were imported, which means that tariffs and their resulting costs could impact housing affordability significantly.