March 14, 2025
New tariffs are pushing up the cost of key materials used in construction and real estate development. A 25% tariff on imported steel and aluminum is already in effect, and additional tariffs may take effect in early April. With construction costs already high and supply chains still recovering from past disruptions, these trade policies are introducing more uncertainty into project planning and budgets. For businesses that rely on imported materials, the coming months could bring higher costs, potential delays, and sourcing challenges. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.
Current Tariffs and What’s Next
A tariff is a tax on imported goods, paid by U.S. businesses when purchasing materials from foreign suppliers. While intended to protect domestic industries, tariffs often raise costs for manufacturers, builders, and consumers.
As of March 2025, the second Trump administration reinstated broad tariffs on key construction materials. A 25% tariff applies to all imported steel and aluminum, regardless of the country of origin. Chinese imports face an additional 20% tariff on various goods, including home appliances and building materials, with Chinese steel and aluminum subject to the full 25% duty.
More tariffs could take effect on April 2, targeting Canadian softwood lumber and Mexican gypsum. If enacted, these measures would greatly impact the construction and real estate industries.
Rising Construction Costs
Construction costs remain high, with input prices still 40.5% above February 2020 levels. Supply chain disruptions and labor shortages during the pandemic drove costs up, and prices never returned to pre-pandemic levels. Now, new tariffs could push them even higher. Industry analysts project that construction costs will rise another 4% to 6% this year, while John Burns Research & Consulting expects material prices to increase by up to 10% in 2025, more than triple its earlier forecast of 3%.
The U.S. construction industry depends heavily on imported materials. In 2024, imported steel made up 13% of total U.S. consumption, with Canada supplying 23%. Aluminum imports accounted for 47%, with Canada providing 58%. Other key steel suppliers include Brazil and Mexico. Aluminum is also imported from the UAE and China.
If new tariffs on Canada and Mexico take effect, costs are expected to rise further. Nearly 70% of the softwood lumber used in U.S. construction comes from Canada, which already faces a 14.5% tariff. Additional duties could push that to nearly 40%, making framing and lumber more expensive. The U.S. also imports 71% of its gypsum from Mexico, meaning drywall prices could increase as well.
Project Timelines
Rising costs are forcing developers and contractors to adjust timelines and budgets. Some are postponing projects, scaling back square footage, or delaying less urgent builds to offset increasing expenses.
Even projects already underway are at risk. Many construction contracts include price escalation clauses, meaning developers may have to pass higher costs to clients or renegotiate financing terms mid-project.
Government-funded projects face even greater challenges. Unexpected cost increases could result in delays, redesigns, or cancellations. Contractors bidding on infrastructure and public works will want to factor in existing tariffs as well as potential new tariffs.
Supply Chain Challenges
Concerns over tariffs are straining supply chains, driving up costs as businesses rush to secure materials. In January 2025, construction input costs rose by 1.4%, the largest monthly increase in two years. According to Associated Builders and Contractors, this spike was partly driven by stockpiling, as companies moved to purchase materials ahead of potential tariff hikes
Finding alternative sources can be challenging, especially for specialized materials such as structural steel or engineered wood products. Domestic manufacturers often lack the immediate capacity to replace large volumes of imports, and expanding production requires time and investment.
Shipping logistics are another concern. Tariffs often cause congestion at ports, as importers rush to bring in goods before higher duties take effect. If additional tariffs are enacted, businesses may see longer delivery times, higher freight costs, and material shortages, creating further uncertainty for construction schedules.
Impact on Housing and Commercial Real Estate
Higher construction costs will likely impact housing affordability, especially for first-time homebuyers. Some industry leaders estimate tariffs could increase new home costs by $17,000 to $22,000, while the National Association of Home Builders projects a $7,500 to $10,000 increase.
The commercial real estate sector may also see rent increases, as developers and property owners pass higher construction and renovation costs to tenants. Investors could shift focus toward sectors such as healthcare, logistics facilities, and data centers, which tend to perform well even in uncertain markets.
Broader Economic Uncertainty
Tariff increases often lead to broader economic impacts. Rising material costs and trade uncertainties could fuel inflation, prompting action by the Federal Reserve to increase interest rates. Higher interest rates would make borrowing for construction projects and real estate purchases more expensive.
Trade disputes may also escalate. Canada has already announced retaliatory tariffs on U.S. exports, including steel, aluminum, and consumer goods. Other U.S. trade partners could impose similar measures, increasing costs across multiple industries and adding more unpredictability to the market.
What Business Leaders Can Do Now
To mitigate the risks associated with the new tariffs, businesses in construction and real estate will want to take proactive steps:
- Secure supply agreements early to lock in current prices and protect against increases.
- Revisit project budgets and build contingencies to address potential price changes.
- Look for alternative or domestic sourcing options for heavily tariffed imports.
- Monitor economic indicators, particularly inflation and interest rates, and adjust financing plans as necessary.
- Stay informed and adaptable regarding trade policy developments
Contact Us
Tariffs on key materials are likely to increase expenses for new home construction, commercial projects, and renovations in the near term. Some businesses may try to absorb the costs or pass them on to consumers, while others could delay or scale back projects. The full impact will depend on whether tariffs remain in place, increase, or are adjusted in the coming weeks. If you have questions about the information outlined above or need assistance with another tax or accounting issue, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.
