Steel prices rose quickly after President Trump’s announcement in March.
Apartment developers say construction costs could increase dramatically because of tariffs proposed by President Trump.
Trump ordered a 25 percent tariff on steel imports and a 10 percent tariff on aluminum that was scheduled to go into effect March 23. These increases are sending shockwaves through the construction market. Camden Chairman and CEO Ric Campo expects a $250,000 to $450,000 impact on future projects if the tariffs happen. “The devil will be in the details,” he says.
On March 8, as part of a White House event, Trump announced there would be an indefinite exemption for Canada and Mexico, which allows time for the countries to renegotiate the North American Free Trade Agreement (NAFTA), The Washington Post reports. Other countries are eligible for exemptions, Trump said March 8.
Campo says the cost of steel rose 10 percent on March 5. Steel mills have announced an increase of up to $100 per ton as early as April. “Vendors are informing us of steel allocations,” he says. “One had their tonnage reduced by 25 percent. Vendors are not providing metal quotes for projects due to the uncertainty in the market.”
Additionally, Campo says vendors are enforcing the “30-day project award” clause, which means they will not lock pricing on any quotes that are more than 30 days old. All quotes not committed to within 30 days are subject to re-bid.
Right now, Campo says Camden has costs locked-in on three projects. Kevin Farrell, COO of Century West Partners and President of Fifield Companies, also does not expect any immediate price increases since most of his subcontractors have locked-in material costs for their current backlog of projects.
“We’ll be in a period of uncertainty as this negotiation plays out,” Farrell says. “Uncertainty will cause some subcontractors to pull bids or arbitrarily increase costs as they assess the true effect of potential material cost increases. As developers, we have to be patient and wait it out and not get too caught up in day-to-day news.”
If the tariffs do become reality, Farrell thinks they could push construction costs even higher for his mixed-use multifamily projects in an already expensive environment. “Our stick-built, mid-rise projects have a fair amount of reinforcing steel in the concrete podium and aluminum in the window and storefront systems,” he says. “So, at face value, a medium-sized project could see an exposure of several hundred thousand dollars in the worst case.”
Zachary Maggart, President at Dynamic Redevelopment Solutions, Greensboro, N.C., expects to see a slight uptick in development costs as current (mostly recycled) steel stock is depleted and American manufacturers gear up to fill the gap that will be created by the tariffs for new material.
“Over time, U.S. new steel production should fill 100 percent of the gap,” Maggart says. “However, I suspect we will not be able to match the un-burdened, low price of imported steel. That said, we should see an overall increase in steel costs to developers, but it should be less than the 25 percent tariff increase for that building component.”
While apartment developers and contractors are understandably skittish, research compiled in March by Ken Simonson, Chief Economist at Associated General Contractors of America, says that the industrial and commercial sectors would be harder hit by the tariffs than apartments. Simonson says that steel is five times more important to industrial and more than four times more important to commercial.
But the price increases could go beyond steel. President Trump’s tariffs could spark a trade war, which would hit developers with increases in other building materials.
“If the tariffs are unchanged and implemented and if further tension arises, especially with Canada, the cost of lumber and steel will go up and costs, therefore, will go up,” says Greg Mutz, Chairman and CEO of AMLI Residential. “It is hard to tell by how much or how fast but no other outcome is possible if tariffs are raised.”
Trump also said March 8 that countries with a “security relationship” may seek exemptions by opening talks with the administration on “alternative ways” to address the threats the administration alleges their products pose to national security, a White House official told The Washington Post.
NAA supplier partners said in mid-March that it is too soon to say whether the tariffs will affect the price of appliances.