Why Trump steel tariff won't hurt housing
The Trump administration's new tariffs on imported steel and aluminum may raise prices on a variety of consumer and commercial products, but will only put minimal strain on the housing industry.
The 25% tariff on steel and the 10% tariff on aluminum are more likely to be a concern for commercial and multifamily construction than the single-family sector, said Tim Rood, managing director at Situs and chairman of consulting firm The Collingwood Group.
"I think for single-family, imported steel and aluminum are going to contribute a small percentage to the home's cost, but when you talk about multifamily and commercial construction, it's substantially higher," said Rood.
But while the American Iron and Steel Institute estimates 43% of steel imports go to the construction industry, very little of it is used in residential construction. Steel frames accounted for less than 0.5% of new single-family houses and about 4% of multifamily buildings, according to Census Bureau estimates.
What's more, new multifamily construction accounts for less than 12% of residential construction spending and only 6% of total private construction spending, according to the Census Bureau.
"Is it the end of the world? No. Is it going to have an impact on the margins? Yes," Rood said.
Across all types of commercial construction, steel accounts for 6% to 8% of the cost to construct a building. That percentage can rise to as much as 20% when the costs to install features like heating, ventilation, and air conditioning are factored in, according to Kathryn Thompson, CEO of Thompson Research Group, an equity research firm specializing in construction and related industries.
But in multifamily buildings, steel accounts for only 1% to 6% of construction costs. The construction industry primarily uses imported steel for building materials like steel studs and ceiling grids, according to a recent Thompson report. The multifamily and office sectors have been driving demand for steel studs, and certain geographic areas, like the West Coast and Florida, use a larger percentage of imported steel than other parts of the country.
Aluminum usage may vary even more widely. Some projects might use it heavily for window frames but others might use a plastic composite instead.
"It could be really high or not much at all," Thompson said.
While the new tariffs are "probably going to be negligible from a single-family or residential point of view," Rood said, there are other reasons for the housing industry to be concerned.
The tariffs, which were signed on March 8 and take effect later this month, aim to protect domestic interests, but critics fear the move could backfire by inflating prices, hurting the economy or upsetting key U.S. trade partners. The tariffs do include exemptions for Canada and Mexico, which account for 16% and 19% of U.S. steel imports, respectively.
So even if residential construction isn't directly affected, higher costs of other products may hurt consumer spending and impede housing affordability at a time when home prices are soaring due to low inventory levels.
Another reason homebuilders are wary of the new tariffs is the soaring cost of lumber due to a 20% tariff imposed on Canadian imports last year.
"You already have builders who can't rationalize the cost to build entry-level homes, so what does this do to supply?" Rood said.
If the new tariffs add to rising costs that have constrained the availability of entry-level homes, mortgage companies could see slightly more demand for loan features that help consumers afford houses.
"I don't know that it is going to be that big of an issue for lending, but usually when prices go up for any reason, while it doesn't necessarily dissuade borrowers from buying, it has the effect of them buying something smaller, buying something with an adjustable rate mortgage, or buying something with more money down," Rood said.