Trump Tariffs and Their Potential Impact on Real Estate

The world economy is an interactive web of markets, with developments in one area affecting many others. One of the most powerful policy mechanisms any government can use is tariffs – taxes leveled against imported products. When President Donald J. Trump unveiled a series of tariffs against products from important trading partners, the real estate market held its breath. The tariffs, largely against key materials such as steel, aluminum products, wood, and scores of Chinese imports, were designed to shield local industries and grow local production. They added an extra layer of risk and expense to an already volatile housing market. 

This article will explore the potential impacts of Trump tariffs on real estate, examining how these economic policies can influence construction costs and the broader real estate investment landscape.

Key Takeaways

• Tariffs on materials like steel, aluminum, and perhaps lumber directly drive the cost of construction higher, affecting the affordability of residential and commercial real estate. 
• Tariffs can indirectly exacerbate existing construction labor shortages by squeezing developer margins, potentially reducing training investments. 
• Higher construction prices, alongside economic ambiguity and volatile mortgage rate fluctuations brought about by tariffs, render the homes less affordable. 
• Industrial, retail, office, multifamily, and hospitality commercial real estate sectors can be impacted by higher development costs as well as supply chain disruptions. 
• Tariffs impose an environment of unpredictability, possibly affecting property pricing and returns throughout the real estate market. 

What are Tariffs?

Tariffs constitute taxes levied by the government against imported goods and services designed to shield local industries from international competition or to raise revenue. The primary objective of tariffs is to render foreign products more expensive, thereby stimulating a shift in consumer preference towards domestic alternatives. Tariffs have the negative consequence of increasing the costs to companies and consumers where local options lack or demand is higher. Understanding tariffs is essential for assessing broader economic impact, including influence on sectors like real estate.

Background on Trump’s Trade Policies

Donald Trump's presidency, his initial term as well as the early portion of his second term, has been marked with an unconventional policy to international trade. Contrary to decades worth of bipartisan support for the free trade agreements, Trump's foreign policy has been influenced overwhelmingly by the "America First" principle, with the goal to recast global trade in the interest of American workers and industries. 

Among the essential policies of Trump's trade are:

• Addressing Trade Deficits: Included the view that huge deficits with some foreign countries, notably China, signaled unfair trade practice and were harming American manufacturing and job growth.
• Imposition of Tariffs: The most prominent tool utilized was the large-scale imposition of tariffs to imported merchandise. 
  
  • Section 232 Tariffs: Particularly, steel (25%) as well as aluminum (10%) import tariffs were levied, under the pretext of national security. 
  • Section 301 Tariffs on China: A trade conflict with China in the form of several rounds of tariffs on a variety of Chinese imports, with rates as much as 145% in some cases. 
  • "Reciprocal Tariffs" and Broader Levies: Donald Trump also initiated a "reciprocal tariff" policy, calling for tariffs against the products from those countries imposing duties against U.S. goods. During his second term, he ordered the imposition of a minimum 10% rate on all U.S. imports, with rates higher in particular countries such as China (145%) and Mexico/Canada (25%).
• Renegotiation of Trade Agreements: Trump advocated for revising existing trade deals, most notably the North American Free Trade Agreement (NAFTA), which was ultimately replaced by the United States-Mexico-Canada Agreement (USMCA).

In comparison to the former administrations, Donald Trump took a more combative strategy, frequently bypassing the international trade norms as well as institutions such as the World Trade Organization (WTO). Trump's policies instigated tremendous uncertainty in the global markets as well as retaliatory tariffs from targeted countries, resulting in a volatile international trade regime. 

Proponents claimed these policies leveled the playing field for US businesses, whereas critics cited higher costs to consumers, supply chain disruptions, and negative effects on US economic growth. 

How Trump Tariffs Potentially Influence the Real Estate Market

Although Trump tariffs directly affect imported merchandise, their spillover effects will influence many aspects of the real estate industry. 

Impact on Construction Costs and Supply Chains

The U.S. relies on lumber imports for 30% of its domestic supply, with Canada providing a significant 80% of softwood lumber imports. Although lumber has long faced tariffs in current trade wars, the threat of new or higher tariffs, as indicated in previous Commerce Department reports, is particularly problematic. 

Even aside from the explicit tariff on lumber, the National Association of Home Builders (NAHB) has explained that tariffs on related materials will have the effect of increasing the cost to build homes. On the imposition of tariffs on lumber as a whole, the already thin margins of the residential construction market would be even further compressed, with the potential to pass the cost onto consumers in the form of higher prices for housing.

In addition to lumber, President Trump has also targeted other key building materials. His administration has already put tariffs on steel (25%) and aluminum (10%), and has considered applying baseline tariffs to copper. As the prices for these products increase, developers have to make the tough decision to either absorb the higher costs or pass them onto the ultimate buyer, which can make new homes or commercial properties less affordable. 

The impact reaches beyond the initial material cost. Tariffs can further have profound supply chain impacts. Construction firms tend to depend on proven, efficient supply chains to achieve timely material delivery. Unpredictable tariff changes can compel companies to look for alternative, possibly higher-cost, or lower-quality producers. 

Wage Growth and Worker Shortages Could Get Worse

The construction industry already suffers from serious shortages in labor, with the Associated Builders and Contractors (ABC) estimating the industry will need about 439,000 new workers in 2025 alone. Tariffs charged to imported construction materials can further compress developers' profit margins by raising the overall cost of projects. This financial stress can decrease their capacity to invest in training new employees or provide the competitive wages required to entice and retain workers in an already constrained labor market. 

In addition, tariffs and linked trade policy have the potential to exacerbate the shortage of workers through secondary economic effects. For one, any further restriction in immigration policy, which is characteristic of the Trump policy platform, would have especially severe effects on the construction workforce, as immigrants currently form a large percentage of workers in the industry (28.6%) with 21.0% non-citizens, as determined by Chmura. With fewer immigrant workers, the current shortage would potentially worsen.

Additionally, the inflationary pressures from tariffs in many sectors lead to calls from all workers, including those in construction, for higher wages. Although construction wages already track higher than the private industry average (construction at 4.3% year-over-year to private industry at 4.0%), broad-based tariff-induced inflation would amplify such demands. 

Housing Affordability and Demand

Tariffs have the potential to directly hit housing affordability, mainly through higher construction costs and possibly affecting mortgage rates. As discussed, material tariffs tend to be passed directly to consumers, thereby leaving new housing less affordable. Tariffs further impose economic unpredictability, affecting the lending climate as well as the confidence displayed by consumers. 

Redfin emphasizes that although mortgage rates will hardly experience dramatic near-term fluctuations as the only reason due to tariffs (because the administration is using alternative methods to implement them), the removal of tariffs en masse would mean the possibility of a massive decline. This is due to lessened tariff-caused recession risk allowing the Federal Reserve to implement rate cuts in light of stabilizing inflation. This may decrease mortgage rates as much as 25 to 50 basis points. 

However, the truth behind the impact of tariffs on mortgage rates and overall economic mood for buyers and sellers is nuanced and sometimes conflicting. It has been observed in the case where after President Trump's April 2 tariff declaration, the rates fell initially but continued to rise in sync with the 10-yr Treasury yield. This indicates that even in the long term relief from lifted tariffs, the immediate market response to trade tensions may be volatile. 

Economic uncertainty due to tariffs can intimidate buyers as well as sellers. Buyers may put off purchases as they worry about the risk of recession or an unpredictable interest rate in the future, whereas sellers may delay listings, resulting in slow market activity. 

Impact on Commercial Real Estate (CRE)

Tariffs also pose numerous threats to the Commercial Real Estate (CRE) market, mainly in the form of higher construction costs and supply chain disruptions, as identified by Houlihan Lokey. The cost of materials will directly add to the cost of development in all CRE asset types, namely industrial, retail, office, multifamily, as well as hospitality. This can delay projects, lead to cancellation, or lower the margins of developers. 

In addition to the immediate cost effect, supply chain disruptions lead companies to reassess their procurement strategies, with the possibility to redirect demand to logistics and industrial spaces. Companies may seek to re-shore operations or adjust their networks to mitigate the impact of tariffs.

The ripple effects encompass market dynamics as a whole, influencing returns, property valuations, as well as cross-border investment. Economic unpredictability, driven by trade tensions, can encourage cautiousness in investors. This likely leads to cap rate widening as well as lower property prices, particularly in the presence of inflationary pressures. The effects can also be sector-specific with retail properties being affected due to the higher costs of consumer goods and less expenditure.

In the end, tariffs add an element of volatility that affects interest rates and investment trends. This compels CRE investors to reconsider strategies and possibly shift capital to less exposed markets or sectors. 

Tips for Investors and Homebuyers Navigating Trump Tariffs

Navigating the real estate market amidst tariff-induced uncertainty requires a strategic and informed approach for both investors and homebuyers. 

For Investors:

• Diversify Portfolios and Locations: Diversify investments throughout the various asset classes (e.g., industrial, multifamily, self-storage, data centers) and geographic markets. Focus on markets less impacted with imported materials or those with robust local demand drivers. 
• Assess Supply Chain Resilience: Identify alternative, domestic sources to procure materials and look into modular or prefabricated construction techniques to decrease dependency on highly tariffed imports and limit construction delays. 
• Focus on Resilient Asset Classes: During periods of economic volatility, prioritize assets with robust, defensive cash flows. Industrial assets, self-storage facilities, workforce multifamily housing, and commercial real estate assets are relatively resilient. 
• Optimize Capital Structures and Prepare for Volatility: With the interest rate volatility, taking fixed-rate debt wherever possible is a potential defensive strategy. Keep financial flexibility and liquidity reserves to take advantage of possible distressed bargains in the case of further market volatility.  

For Homebuyers:

• Assess Personal Financial Stability: With an uncertain economy, it is important to determine your employment security as well as your general financial well-being. 
• Track Mortgage Rates and Consider Rate Locks: Mortgage rates can move up or down with economic volatility and inflation. Monitor them closely and get pre-approved in advance. If you have less than 60 days to complete the purchase, opt for the fixed-rate option and arrange with the lender to lock in the interest rate to prevent surprises if the rates rise. 
• Be Prepared for Higher Costs (Especially for New Construction): Keep in mind that even new construction can be more costly. Consider these increases in your budget. 
• Don't Panic Buy/Sell: Economic volatility can produce a mixed basket of market conditions. 
• Conduct Thorough Due Diligence: Always perform complete due diligence on any property. This means conducting professional inspections and research into local market conditions.

Conclusion: Preparing for Real Estate Shifts in a Tariff Economy

The real estate market is becoming increasingly vulnerable to the ripple effect of tariffs. As has already shown, President Trump's trade policy, with its blanket tariffs placed on key materials and "America First" policy, creates substantial complexities. As much as real estate is said to be an asset class with strength, tariffs build the environment where conventional investment strategies will have to be reassessed. 

It will ultimately be understanding and responding to the macro and microeconomic effects rooted in tariffs to uncover opportunities in this volatile real estate market. Learn more about real estate insights as well as current market news from Concreit.

Sources:

https://www.whitehouse.gov/fact-sheets/2025/04/fact-sheet-president-donald-j-trump 

https://www.whitehouse.gov/presidential-actions/2025/06/adjusting-imports-of-aluminum

https://ustr.gov/issue-areas/enforcement/section-301-investigations/tariff-actions

https://eastasiaforum.org/2025/01/08/how-trump-threatens-the-world-trading-system

https://natural-resources.canada.ca/forest-forestry/forest-industry-trade/canada-s-softwood-lumber-industry

https://www.nahb.org/blog/2025/04/lumber-production-and-tariffs

https://www.chmura.com/blog/tariffs-and-immigration-policy-construction

https://www.globenewswire.com/news-release/2025/01/24/3014845/0/en/ABC-Construction-Industry-Must-Attract-439-000-Workers-in-2025.html

https://www.redfin.com/news/tariffs-volatile-mortgage-rates-construction/

https://cdn.hl.com/pdf/2025/real-estate-highlight-tariffs-commercial-real-estate-2025.pdf