Tariffs might seem like far-off trade policy—but in 2025, they’re hitting home, literally. With new import taxes driving up the cost of construction materials, everything from starter homes to large developments is feeling the squeeze. Builders face higher expenses, investors grow wary, and buyers see price tags climb. The impact goes beyond the job site, reshaping real estate decisions across the board. As these policies ripple through the economy, they’re quietly rewriting the rules of the U.S. housing market.
The Direct Impact on Construction Costs
Tariffs make imported construction materials more expensive, and those higher costs ultimately get passed along to home builders and buyers. For example, a 25% tariff on a $500 washing machine imported from abroad means an extra $125 tax is added. In most cases, the consumer ends up paying that added cost. Since many home appliances and building fixtures are imported, tariffs directly increase the price of outfitting a home.
Key Building Materials Affected by Tariffs
Softwood Lumber
The U.S. Department of Commerce currently imposes about a 14.5% tariff on softwood lumber from Canada, which supplies roughly 85% of U.S. softwood lumber imports. Lumber is a major component of home construction. That tariff is slated to more than double to 34.5% later in the year. Since Canadian wood makes up nearly one-quarter of the U.S. lumber supply, a higher tariff can significantly raise the cost of framing a house.
In fact, the National Association of Home Builders (NAHB) estimates that recent tariff actions (including lumber and other materials) have added about $10,900 to the cost of the average new single-family home.
Steel and Aluminum
These metals are used in everything from structural beams and rebar to nails, siding, and appliances. A 25% tariff on imported steel and 10% on imported aluminum (in place since 2018 and reinforced in 2025) raises costs for any construction that uses metal. The NAHB projected that new broad metal tariffs could add several billion dollars in costs to imported steel and aluminum products, making it harder for builders to deliver projects on budget.
Higher steel prices affect apartment and condo construction (which use a lot of steel) as well as single-family homes (steel is in garage doors, appliances, HVAC systems, etc.). Aluminum tariffs make items like gutters, window frames, and wiring more expensive.
Solar Panels
An increasing number of new homes (especially in certain states) include solar panels. However, many solar panels are imported. A special pause on tariffs for solar panels from certain Asian countries expired in mid-2024, meaning anti-dumping duties over 200% could hit imported solar modules afterward. In simple terms, tariffs could triple the cost of some imported solar panels.
This makes home solar installations far more expensive for builders and homeowners. In places like California (which requires solar on new single-family homes), such a change would raise construction costs noticeably.
Other Materials and Products
Many other components of a house are sourced globally. For instance, a lot of drywall (gypsum) comes from Mexico, and tiles, countertops, and fixtures might be imported from Europe or Asia. Home appliances are often made overseas as well.
The NAHB estimated that in 2024 roughly 7% of all goods used in constructing U.S. homes were imported. On average, about $12,700 worth of imported products go into building a new single-family house. If tariffs make those items cost 10%, 20%, or even 50% more, it can add thousands of dollars to the cost of a home.
The Cumulative Cost Impact
All told, building a home has become much more expensive over the past few years. The NAHB reports that overall building material costs have jumped 34% since December 2020 – far outpacing general inflation. Tariffs are not the only cause (global supply chain issues and pandemic disruptions also played a role), but tariffs are a significant factor pushing those costs higher.
With materials like lumber, steel, and aluminum facing tariff-related price hikes, the cost to construct homes has risen steeply. Builders say they have little choice but to pass most of these increases to consumers in the price of new houses.
Effects on Home Prices and Housing Affordability
When construction costs go up, home prices tend to follow. If it suddenly costs a builder $20,000 more to build a house due to higher lumber and metal prices, that extra cost will likely show up in the final price tag of the home. Even if a builder tries to absorb some costs, they can only cut their profit margins so much before a project no longer makes financial sense to build.
The Affordability Crisis Worsens
This is happening at a time when housing affordability is already a major challenge. According to NAHB data, about 100.5 million American households (over 76% of all households) are unable to afford the median-priced new home (around $460,000 as of early 2025).
When home prices rise further, more families get “priced out” of the market. NAHB calculations show that a $1,000 increase in the price of a median new home prices out approximately 115,000 additional households – families that could have qualified for a mortgage before, but no longer can at the higher price.
Now consider that tariffs on materials have added roughly $10,000+ to the cost of a typical new home. That could translate to over a million families who are priced out nationwide due to tariff-driven cost increases alone, on top of those already unable to buy.
Supply Constraints and Vicious Cycles
Housing prices in many areas remain high because supply is tight – there aren’t enough affordable homes to meet demand. Tariffs can indirectly worsen this by constraining supply further. If fewer new homes are built (because they cost more to build, or because builders focus only on higher-end homes to recoup costs), then buyers compete for a limited number of houses, which keeps prices elevated.
It becomes a vicious cycle: higher costs lead to higher prices, which squeeze out more buyers and exacerbate the affordability crisis.
Impact on the Rental Market
It’s not just buyers who are affected. Renters can feel the impact too. When new apartment construction slows down (partly due to expensive building materials), it means fewer new rentals coming on the market. If people who are priced out of buying remain renters, that pushes up demand for rental units.
In early 2025, the median U.S. asking rent was about $1,610 per month (slightly below the 2022 peak of $1,705). Rents had stabilized and even dipped a bit year-over-year. However, economists warn that tariffs could reverse this trend by both reducing apartment supply and increasing demand for rentals.
Redfin’s lead housing economist noted that America sources a lot of building materials internationally, so tariffs will make it more expensive to build apartments, likely resulting in higher rents due to constrained supply. At the same time, tariffs create economic uncertainty – with big swings in the stock market and expectations of pricier goods – which might cause more people to delay buying a home and continue renting.
Competing Market Forces
It’s important to note that home prices are influenced by many factors (interest rates, local zoning, wage growth, etc.), not just material costs. In fact, Zillow’s latest forecast in spring 2025 predicted a slight decline in home values (around 1-2%) over the year as more listings become available and high mortgage rates cool demand.
That offers a glimmer of relief if it holds true. But those predictions also assumed no major shocks. Tariffs introduce another wild card: they contribute to inflation in construction costs, which could keep home prices elevated relative to incomes.
Many economists and housing experts are concerned that instead of seeing a gentle cooling of home prices (which would help buyers), we may see prices stay stubbornly high because it’s so costly to add new supply.
New Residential Construction and Development Trends
Homebuilders are feeling the squeeze from tariff-driven cost increases, and it’s influencing how much – and what – they build. One way to gauge builder outlook is the NAHB/Wells Fargo Housing Market Index (HMI), which measures builder confidence on a scale where values above 50 indicate more builders see conditions as good than poor.
In 2024 and 2025, this index has been stuck below 50, reflecting a pessimistic view among homebuilders. In March 2025, builder confidence dipped to an HMI reading of just 39 (negative territory), the lowest in seven months. It ticked up slightly to 40 in April, but that’s still a very subdued outlook. Builders cite rising costs of materials and uncertainty about tariffs as major concerns holding back their optimism.
Construction Activity Trends
Builders have pulled back on construction plans when their costs rise or the market outlook darkens. After a boom in 2021, housing starts (new construction projects begun) fell in 2022 and 2023 amid rising interest rates and material price spikes. There was a modest rebound in single-family home building in late 2024 as demand remained strong, but new tariffs and costs have since added caution.
According to U.S. Census Bureau data, around 1.36 million housing units were started in 2024, which is about a 3.9% decline from 2023. This overall dip masks a split trend: single-family home starts actually rose by roughly 6.5% in 2024 (to just over 1 million units) as builders tried to meet continued buyer demand, but multifamily starts (apartments and condos) plummeted by about 25% compared to the previous year.
High construction costs and a glut of expensive new apartments from the prior boom made developers more cautious in launching new multifamily projects. Now, in 2025, with tariffs adding further cost pressures, the concern is that builders will remain hesitant to ramp up production, especially for more affordable housing segments.
Builders Already Feeling the Effects
Many builders report that they are already seeing the effects of tariffs in their expenses. In NAHB’s April 2025 survey, 60% of homebuilders said their suppliers have raised prices on them due to current or expected tariffs. The price hikes from suppliers averaged about 6.3% on affected materials.
This is even before some of the new tariffs have fully kicked in (several announced tariff increases were delayed or paused temporarily). The mere announcement of tariffs has caused suppliers to preemptively boost prices, and builders are bracing for further cost surges later in the year when higher tariff rates take effect.
The uncertainty itself is a problem: builders find it hard to predict project costs when trade policies are in flux. NAHB’s analysis noted that just the uncertainty from tariff announcements can discourage investment – it makes both consumers and businesses more cautious, which can slow down construction activity.
Shifting Development Strategies
Development trends are shifting in response to these pressures. Builders are looking for ways to cut costs or avoid tariffs where possible. Some strategies include using alternative materials or suppliers – for example, using more domestic lumber (though U.S. sawmills currently cannot meet all the demand) or sourcing materials from countries not subject to tariffs.
In some cases, builders may redesign homes to use less of a high-tariff material. For instance, if steel prices are way up, a builder might opt for wood framing in portions of a project where they might have used steel, or they might simplify a design to require less structural steel or aluminum.
We are also seeing builders scale down the scope of projects – building slightly smaller homes or slightly fewer luxury finishes – to keep costs manageable. Unfortunately, trimming features can only go so far, and it doesn’t fully offset major material cost increases.
Focus Shifts to Higher-End Construction
Another trend is a focus on higher-end construction at the expense of entry-level homes. Since higher-end homes have larger profit margins, builders can more easily absorb or pass on extra costs in that market. On the other hand, building low-priced starter homes is least feasible when costs are elevated, because the profit margins are thin to begin with.
Tariffs may inadvertently push builders to concentrate on luxury or move-up homes (where an extra $15,000 in costs might be tolerated by wealthier buyers) and avoid building cheaper homes (where that $15,000 could price the home out of reach for the target market). This exacerbates the shortage of affordable starter homes.
Delayed Multi-Family Projects
New tariffs have also put some big multi-family (apartment) projects on hold. Apartment developers often operate on tight budgets to ensure the project “pencils out” (i.e., the rent income will cover costs and yield profit). When steel, concrete, and imported fixtures jump in price, planned developments may no longer be financially viable, especially for mid-range or affordable rental projects.
Some developers are delaying groundbreakings, waiting to see if material prices stabilize or if there’s any easing of tariffs through negotiations. The slowdown in apartment building is already evident; as noted, multifamily construction starts fell sharply in 2024. Industry analysts expect 2025 to bring even fewer new apartment units to market given the tariff headwinds and higher financing costs.
Investor Sentiment and Housing-Related Stocks
Tariffs don’t just influence those swinging hammers on construction sites – they also affect the mood of investors in the housing sector. Real estate investors and analysts closely watch profit margins for homebuilders, suppliers, and related companies, and tariffs threaten to erode those margins.
If building a home suddenly costs 10% more in materials, that could eat into a builder’s profit unless they raise home prices (which, as discussed, isn’t always fully possible). This has made Wall Street and investors skittish about housing-related stocks whenever new tariffs are announced.
Market Reaction to Tariff News
A clear example occurred in early April 2025. When sweeping new tariff plans were unveiled (including broad tariffs on many countries and a hefty specific tariff on China), homebuilder stocks tumbled alongside the broader stock market. Investors feared that higher construction costs would slow down the housing market’s recovery.
On April 3, as tariff details emerged, major builders’ share prices fell sharply: D.R. Horton (the largest U.S. homebuilder) dropped over 2% in one day, while Lennar and PulteGroup (other top builders) each fell nearly 5%. An index fund that tracks homebuilding stocks (the S&P Homebuilders ETF) slid about 6% in the same day, reflecting a broad sell-off in the sector.
Such declines show that traders and investors immediately factor in tariff impacts – essentially, the stock market is saying “these tariffs are bad news for homebuilders’ profits, so the companies are worth less now than they were before.”
The Investment Outlook
The sentiment among investors is that tariffs act as a headwind to the housing industry. Higher input costs can lead to lower housing supply and/or higher home prices, either of which can reduce home sales volumes. If fewer homes are built or sold, homebuilding companies make less money.
Even firms that supply building materials can be hurt; for instance, a domestic lumber company might benefit from less foreign competition, but if overall home construction slows due to expensive inputs, they could end up selling less lumber in total. This interconnectedness is why stock analysts frequently mention tariffs in the same breath as housing market health.
Impact on REITs and Rental Property Investors
Real estate investment trusts (REITs) and rental housing investors are also watching tariff developments. If tariffs spur inflation, the Federal Reserve might keep interest rates higher for longer to combat it. High interest rates increase borrowing costs for everyone, including property investors, and can cool off property values.
Additionally, fewer new homes could mean more demand for rentals, which might be a silver lining for owners of rental properties (they could potentially charge higher rents in a tighter market). But that benefit could be offset if a tariff-induced economic slowdown affects tenants’ ability to pay or if overall confidence erodes.
Volatility and Policy Sensitivity
Market sentiment in late 2024 and 2025 clearly reflects tariff jitters. One financial analyst noted that homebuilder stocks had already been selling off since late 2024 as investors grew worried about worsening affordability and a build-up of unsold new homes. The tariff announcements added fuel to these concerns.
On the flip side, whenever there’s hint of relief on the tariff front, housing stocks tend to get a boost. For example, when the U.S. government decided to exclude Canadian lumber from certain new tariffs or pause some tariffs for negotiations, it was welcomed as good news by the industry. Such moves can lead to a short-term rally in homebuilder equities, as they temporarily alleviate some cost pressure.
Beyond stocks, broader real estate investor sentiment (for example, among those who invest in land or development projects) has turned more cautious. Developers are reevaluating the viability of projects given higher costs, and some land deals or construction loans are being reconsidered.
Regional Differences in Impact
The impact of tariffs on the real estate market can vary by region, depending on local building practices, economic conditions, and how much regions rely on imported materials.
Urban vs. Rural Areas
Cities often have large-scale construction projects, like high-rise apartments or commercial buildings, which heavily use steel, aluminum, and imported components. A big city skyscraper or condo tower might require tons of imported steel beams or curtain wall panels – tariffs can substantially raise the cost of these urban developments.
In addition, many urban areas (especially on the coasts) have building codes or trends that incorporate international products – for instance, high-end imported tiles from Italy or smart home systems from Asia in luxury city condos. Tariffs on those items can increase costs for urban construction and renovations.
However, urban projects also tend to have higher profit margins and budgets, so they might absorb cost increases differently. For example, a $20 million luxury condo project in Manhattan can more easily hide a $500,000 increase in material costs than a small builder constructing homes in a rural town.
In rural and less populated areas, home construction is often smaller-scale – think single-family homes, farmhouses, or small developments. These projects typically rely on wood framing (lumber) and basic materials that might come from regional suppliers. Tariffs on lumber directly hit these areas because many rural homes are wood-framed.
Unlike a big city project, a rural builder can’t easily increase the home price by tens of thousands of dollars; local incomes might not support it. So rural builders may simply build fewer homes or opt for smaller floor plans when materials get pricey.
Import-Dependent Regions
Certain states and regions import a lot of building materials or finished products, making them more sensitive to tariffs. For example, Hawaii and Alaska import most of their building supplies (because of their geographic isolation). A significant portion of lumber, cement, steel, and appliances in Hawaii comes either from the U.S. mainland or other countries across the Pacific.
Tariffs increase the cost of those imported goods, and given Hawaii’s already high construction costs (due to shipping and logistics), any extra tariff is yet another add-on. This can make building a home in Hawaii even more exorbitant, exacerbating its affordable housing issues.
Border states like Washington, Michigan, Maine, and North Dakota, which might import lumber or other materials from Canada, will directly feel changes in Canadian import tariffs. In the Southwest, states like Texas and Arizona often get a lot of construction materials from Mexico.
Under the USMCA trade agreement, Canada and Mexico were initially exempt from some new broad U.S. tariffs, recognizing their importance. If those exemptions hold, builders in Texas might continue to import Mexican cement or gypsum without new tariffs, somewhat insulating them compared to builders on the coasts who rely on goods from Asia.
Shifting Development Patterns
Tariffs may also influence where development happens. If building in a city becomes too costly, some developers might pivot to cheaper suburban projects (though those have their own costs like land development and are still subject to material costs).
Conversely, if tariffs make basic homes expensive everywhere, some builders might concentrate near major distribution hubs or ports where materials are easier to get – which often means closer to urban centers or shipping routes. In essence, tariffs could inadvertently steer construction toward or away from certain areas.
Conclusion
From the price of a two-by-four to the sticker price of a new home, the tariffs implemented since 2024 are reverberating throughout the U.S. real estate market. They are raising construction costs for homebuilders and developers, which in turn is pushing up home prices and rents or stifling new construction.
Prospective homebuyers face even tougher affordability challenges as the costs of tariffs on materials show up in higher home prices and fewer homes on the market. Renters could see higher rents if new housing supply (especially apartments) falls short. Builders are responding by being more cautious, scaling back on projects that no longer make financial sense and concentrating on higher-end developments to recoup costs.
Investor and business sentiment around housing has also become more guarded – evident in the volatility of homebuilder stock prices and in surveys of builder confidence. While the tariffs aim to protect certain American industries (like steel, aluminum, and lumber production), they also act as a tax on home construction, ultimately borne by American consumers in the form of pricier homes and apartments.
Going forward, the trajectory of the real estate market will in part depend on how these tariff policies evolve. If some tariffs are rolled back or if supply chain adjustments alleviate costs, we could see builders ramp up activity and housing costs stabilize. On the other hand, if tariffs expand or remain in place without alternatives, we may continue to face an uphill battle in housing affordability and supply.
The story of tariffs and housing is a reminder that decisions made on the global trade stage can hit close to home, literally affecting the roofs over our heads.
References
- How Tariffs Impact the Home Building Industry | NAHB
- Trump’s 25% Tariffs on Steel and Aluminum Will Drive Up Housing Costs | NAHB
- As Biden Executive Order Ends, Duties Exceeding 200% to be Imposed on Certain SE Asian Solar Cells & Modules; Tariffs Impacting Additional Modules May be Next | Kilpatrick Townsend
- New Tariffs: Redfin’s Latest Analysis of Housing Market Impacts | Redfin
- Redfin Reports U.S. Asking Rents Fell Slightly in March, But Tariffs Could Drive Up Costs for Renters | Redfin Corporation (RDFN)
- Households Priced-Out by Higher House Prices and Interest Rates | NAHB
- Housing Starts End 2024 on an Up Note | NAHB Eye on Housing
- NAHB: Home builder confidence improves slightly | Santa Clarita Valley Signal
- Builders already seeing costs rise despite tariff pauses | Real Estate News
- Articles by Dani Romero’s Profile | Yahoo Finance Journalist | Muck Rack
- We Expect Homebuilders Will Push Back on Tariff-Related Price Increases | Morningstar
- Zillow Home Value and Home Sales Forecast (April 2025) | Zillow Research
