Trump’s Tariffs Threaten Bay Area Housing Affordability

Published: March 5, 2025

President Trump’s imposition of tariffs on goods from China, Canada, and Mexico is poised to exacerbate the Bay Area’s existing housing crisis, already strained by high interest rates and escalating construction costs. These tariffs threaten to further inflate building expenses and home prices, possibly undermining efforts to increase the region’s housing supply.

The Tangled Web of Tariffs

The fluctuating timeline for implementing these tariffs has created uncertainty for homebuilders, making it tough to predict which duties will take effect and when. Here’s a breakdown of the announced tariffs:

• Mexico and Canada: A 25% tariff was announced Feb. 1, set to take effect in March, but was temporarily paused after pledges to curb drug flows. The tariffs whent into effect March 4.
• China: A 10% tariff on Chinese imports was announced Feb.1,effective Feb. 4, with an additional 10% effective March 4, bringing the total to 20%.
• Steel: A 25% tariff on steel and aluminum imports from all countries was ordered Feb.10, effective March 12.
• Lumber: A potential 25% tariff on international forest and lumber products was floated Feb. 19,slated for around April 2. Canada already faces 14.5% tariffs on softwood lumber as of August 2024; the additional tariff would raise it to 39.5%.

On the campaign trail, Trump articulated that these tariffs would “raise tax revenue and bolster domestic production of resources critical to national security.” However, the practical implications for the housing market are far more complex.

homebuilder Confidence Plummets

The National Association of Home Builders reported a significant drop in homebuilder confidence in February, attributing the decline to anxieties over tariffs and rising housing costs. As Canada and China announced retaliatory tariffs, and Mexico signaled similar intentions, investor unease regarding the global economy intensified, leading to a stock market downturn.

Quantifying the Cost: A Moving Target

Builders acknowledge that tariffs will increase costs, yet pinpointing the exact financial impact remains challenging.Factors such as strategic lumber purchasing, shifting to domestic appliance manufacturers, and potential increases in borrowing costs all contribute to the uncertainty.

To illustrate the potential impact, one estimate suggests building costs are set to increase by approximately 5%. A report by John Burns Real Estate Consulting (JBREC) forecasts a 5% rise in building material costs. JBREC analyzed the U.S. supply chain, considering the contributions of Canada, China, and mexico, and calculated average tariff rates to estimate the potential cost increases for specific products.

Consider a hypothetical Oakland apartment complex. According to a study by the Terner Center for Housing Innovation at UC Berkeley, a hypothetical wood-frame, mid-rise 120-unit apartment building in Oakland might have these figures: Land costs are $8 million, and hard costs are $50 million. If labor accounts for half of the hard costs, then the material costs would be $25 million. A 5% tariff on materials adds $1.25 million, increasing total project costs to $82.05 million, a 1.5% budget increase.

The Bigger Picture: Land Costs Dominate in the Bay Area

Land costs are a significant portion of a home’s total expense, especially in the Bay Area. According to a 2024 Federal Housing Finance Agency study, land accounts for roughly two-thirds of a typical single-family home’s price in the region.

this reality incentivizes denser construction, spreading land costs across multiple units and reducing its proportional impact on individual unit prices. As an inevitable result, urban multifamily developers will bear a greater burden from tariffs compared to single-family home developers in less urbanized areas, as materials represent a larger portion of their overall project budget.

Beyond Tariffs: Interest Rates Remain a Key Obstacle

while tariffs pose a threat, many developers see interest rates as a more pressing issue. “Tariffs are not as much of an issue for the housing industry as the Federal Reserve’s reluctance to lower the interest rates,” said Andy Ball, president of oWOW.

the pandemic building boom was fueled by near-zero interest rates, which ended in 2022 as rates climbed to a peak of 5.33% in August 2023. Though rates have fallen to 4.3%, they remain elevated, deterring new projects.The full impact of tariffs on the housing supply may not be realized until interest rates decline.

Actionable Advice for Homebuyers and Renters

• stay informed: Monitor tariff developments and their potential impact on housing costs.
• Consider alternatives: Explore smaller homes or apartments in less urbanized areas to mitigate land costs.
• Advocate for policy changes: Support policies that promote affordable housing and address supply shortages.

The confluence of tariffs and interest rates poses a significant threat to housing affordability in the Bay Area. While the exact magnitude of the impact remains uncertain, proactive planning and informed decision-making can help navigate the challenges ahead. Are you ready to explore options to mitigate the impact of rising housing costs? Contact a financial advisor today to discuss strategies tailored to your situation.