As the Trump administration begins imposing tariffs on crucial construction materials, builders and homebuyers are bracing, with no degree of certainty, for the impacts these levies will have on the home building industry. The cost hikes of imported lumber, steel, drywall, and appliances from Canada, China, and Mexico threaten to increase home prices, further pricing out buyers on the quest for homeownership.
So what does this mean for builders and the already turbulent housing market? At New Home Star, our team of expert market analysts continuously monitors the home building landscape and has compiled a list of predictions and takeaways to help navigate the imposed challenges of these tariffs.
The Short- and Long-Term Impacts Tariffs Will Have on Home Building
In the short term, builders can expect to see material cost increases on imported goods and project delays due to shifts in suppliers and material sourcing. Additionally, there will be some margin reduction as builders often absorb some cost increases to keep pricing competitive. Smaller builders will feel this more than larger builders with immense purchasing power. Lastly, volatility in pricing and bidding due to trade policy uncertainty will prevent builders from providing accurate projections and estimates.
In the long term, significant shifts in supply chains will prompt builders to localize or diversify their supply networks to reduce tariff exposure and overall volatility. This may also encourage a switch toward alternative building practices and materials. Over time, the cost increases felt by builders will be passed on to consumers as the cost of purchasing a home rises, with some predictions in the tens of thousands. In response, builders may incorporate geopolitical and trade policy kiosks into their overall business plans.
Which materials or cost factors will likely be hit the hardest, affecting home prices?
As a core construction material, lumber, specifically from Canada, will likely be the hardest hit, followed closely by steel and aluminum, which are primarily imported from Mexico and other countries. Materials from Asian markets, including ceramic, porcelain, home appliances, lighting, and electrical fixtures, will also see surges in pricing. Cumulatively, even if each construction cost category increases modestly, the total impact could be $15,000-$50,000 per home, depending on the size, scope, and finish level.
How should builders and developers adjust their strategies to navigate these changes?
To successfully steer business operations amid tariff complexities, builders should attempt to:
- Diversify supply chains away from the most heavily impacted countries
- Reengineer product designs to substitute home features away from heavily tariffed products to maintain price points as much as possible without compromising quality or aesthetics too drastically
- Reduce the base included home features and increase the optional upgrade features to keep entry prices low
- Bulk purchase and store materials at today's lower prices for later use
- Adopt contract language with buyers to address rising costs and how they may translate to a higher final price throughout construction
- Increase the accuracy of material amount estimates to reduce overspend and waste
Which potential policy shifts or market trends could help offset the impact of tariffs?
There are several steps builders can take to counteract the ripple effects these tariffs are expected to have on the industry. Start by lobbying to exempt key construction materials from tariffs to help lower costs. Push for increased incentives and support for domestic manufacturers and suppliers to strengthen the industry and create more reliable material sources. Take advantage of tax credits, reduced fees, and streamlined approval processes designed to benefit builders focused on affordable housing. Beyond these steps, adopt a comprehensive strategy that includes innovative home designs, advancements in construction technology, and collaboration on favorable policy changes. Additionally, work toward developing stable and resilient supply chain models to ensure long-term affordability and sustainability in the housing market.
How can home builders stay competitive in this environment?
- Embrace flexibility and adaptability.
The builders who thrive now are those who can adjust faster than the market shifts. Develop flexible spec packages, pricing tiers, and sourcing plans that allow the company to pivot quickly in response to cost fluctuations or changes in buyer behavior.
- Optimize costs — don’t just cut them.
Instead of simply reducing expenses, focus on cutting waste. Use data and buyer insights to identify underutilized features, refine layouts, and reallocate spending toward high-ROI finishes that add real value for buyers.
- Strengthen supply chain partnerships.
Build strong relationships with domestic manufacturers, distributors, and regional vendors. Negotiate volume pricing, early-bird discounts, or just-in-time delivery agreements to shield from supply chain disruptions and tariff-related cost spikes.
- Know Target Consumer Profiles (TCP).
It is crucial that builders have a deep understanding of their target buyers. Offer strategic, TCP-tailored incentives that protect margins while making buyers feel secure in an uncertain market.
- Refine land acquisition strategies.
In a volatile environment, location and affordability become top priorities. Focus on areas where demand remains strong and ensure projects align with shifting buyer preferences.
- Stay engaged in advocacy and policy.
Builders must have their voices heard through local home builder associations and legislative events. Advocate for favorable zoning reforms, streamlined permitting, and builder/consumer incentives to create a more sustainable building environment.
- Prepare for economic uncertainty.
Builders should position themselves in resilient housing segments and markets when facing inflation or a potential recession. Focus on products that cater to steady demand, ensuring long-term stability for home building businesses.
By staying proactive and strategic, builders across the U.S. can navigate challenges while positioning themselves for long-term success in an evolving market.
