US President Donald Trump’s sweeping tariffs on imports from China, Canada, and Mexico will further strain the already inadequate housing market in the Bay Area. The tariffs, which went into effect March 4, have caused builders to raise concerns about increased construction costs and home prices.
The impact of the tariffs is uncertain, but experts estimate that building costs may rise by around 5%. This could lead to higher rents and reduced supply of homes. A recent study found that materials account for a significant portion of a home’s total cost, with land values driving up development costs in the Bay Area.
The pandemic building boom, fueled by near-zero interest rates, has ended due to high interest rates. However, experts believe that when interest rates fall, tariffs will have a greater impact on the housing supply. For now, builders are more concerned about the Federal Reserve’s reluctance to lower interest rates than tariffs.
While some developers acknowledge that tariffs could be a challenge, others point out that it is not the primary issue affecting their business. A study by the Terner Center for Housing Innovation found that labor costs account for around 40% to 50% of hard costs in construction projects. Assuming this estimate holds true, material costs would be around $25 million, adding an extra $1.25 million to a project’s budget.
The Bay Area’s housing market is already facing challenges due to high land values and increasing development costs. Tariffs are just another hurdle for builders trying to increase supply and reduce prices. Experts warn that the impact of tariffs will be felt more in the long term, once interest rates fall and financing becomes cheaper.
Source: https://www.mercurynews.com/2025/03/04/trumps-tariffs-housing-costs