Gavtax

How the New Steel and Aluminum Tariffs Could Reshape the Real Estate Industry

On June 4, 2025, former President Donald Trump doubled tariffs on imported steel and aluminum from 25% to 50%. While this move was touted as a measure to protect American industries and address national security concerns, its ripple effects are poised to touch virtually every corner of the economy—especially real estate. From residential construction to commercial development, the impact of this decision could reshape the way the real estate industry operates in the coming months and years.

A Direct Hit to Construction Costs

Steel and aluminum are foundational materials in modern construction. Steel forms the skeletons of high-rises, frames for single-family homes, and rebar that reinforces concrete. Aluminum is integral to window frames, HVAC systems, siding, and electrical wiring. A 50% tariff on these materials is not just a minor bump; it’s a seismic shift in input costs.

Developers and contractors across the country are already grappling with price hikes. Industry analysts estimate that construction costs could rise between 5% and 15%, depending on the size and scope of a project. For large-scale commercial builds or multifamily housing developments, this can translate into millions of dollars in unexpected expenses.

Project Delays and Cancellations

As budgets balloon, many developers will be forced to make tough decisions. Projects already in the planning phase may be postponed, re-scoped, or even canceled outright. For example, affordable housing projects—which often operate on razor-thin margins and rely heavily on fixed budgets and government subsidies—are particularly vulnerable. If costs exceed funding, these vital projects may never break ground.

Even ongoing construction may slow down. Contractors may delay purchasing materials in hopes of price stabilization or seek alternative suppliers, creating bottlenecks and inefficiencies. In the long run, this could lead to a slowdown in housing completions and exacerbate the already critical shortage of housing supply in many U.S. cities.

Commercial Real Estate Feels the Pinch

The commercial real estate sector is no less insulated from these effects. Steel-intensive projects such as warehouses, office towers, factories, and data centers will face substantial cost increases. With the logistics and industrial real estate boom in recent years, especially due to the rise of e-commerce, these additional costs could pose a serious threat to expansion plans.

Moreover, developers and investors may become more cautious in greenlighting new projects. They may prioritize less capital-intensive ventures or focus on markets where material costs can be more easily absorbed through higher rents or sale prices. This could create an imbalance in geographic development, leaving some regions underserved.

Margin Compression for Builders and Developers

One of the most immediate consequences of the tariffs is the compression of profit margins. Developers will either have to absorb the increased costs—thereby reducing profitability—or pass them on to buyers, tenants, or clients. In a competitive real estate market, the latter option may not always be feasible.

Smaller developers and construction firms are particularly at risk. Unlike larger firms with diversified portfolios and the ability to hedge against market volatility, smaller operators may find themselves unable to complete projects within budget, potentially leading to bankruptcies or consolidations within the industry.

Housing Affordability and Market Prices

Perhaps the most concerning long-term impact is on housing affordability. The U.S. is already facing a chronic shortage of affordable housing. If construction slows and costs rise, the supply-demand gap will only widen. In turn, this can lead to increased competition for existing homes, driving up both rental rates and purchase prices.

First-time homebuyers and low- to middle-income families will be hit hardest. With fewer affordable options on the market, many may be priced out entirely, forced to remain in rental markets that are also becoming increasingly expensive.

Supply Chain and Labor Disruptions

Beyond raw material costs, the tariffs introduce a new layer of uncertainty to construction supply chains. Suppliers that relied on imported steel and aluminum may face delays or shortages. Builders, in turn, may struggle to coordinate labor schedules when materials are unpredictable. This logistical uncertainty could lead to further inefficiencies and delays across the industry.

Moreover, any move to ramp up domestic production of steel and aluminum will take time. Manufacturing plants can’t scale overnight, and labor shortages in the skilled trades remain a persistent challenge. Until domestic capacity catches up—if it does—the industry will remain in a precarious position.

International Tensions and Retaliation

Another variable is the global response. Countries like South Korea, the European Union, and India have already voiced concern and are considering retaliatory tariffs. Such moves could escalate trade tensions and introduce further volatility to the global supply chain. For an industry as interconnected as construction and real estate, these macroeconomic forces matter.

If retaliatory measures target U.S. construction materials or real estate investments, the impact could reverberate beyond American borders. International investors, who are major stakeholders in U.S. commercial real estate, may reconsider their exposure, leading to reduced capital inflows.

So what can real estate professionals do in the face of these challenges? First, developers and builders should revisit their procurement strategies. Exploring alternative materials, renegotiating supplier contracts, and investing in value engineering can help mitigate some of the cost increases.

Second, industry leaders should advocate for policy clarity and relief. Working with trade associations, lobbying for exemptions, or seeking subsidies for affordable housing developments could offer temporary reprieve.

Finally, embracing innovation will be key. Technologies like modular construction, 3D printing, and prefabrication offer promising ways to reduce material waste and labor costs. These methods may become more attractive as traditional construction inputs become costlier and harder to source.

The doubling of steel and aluminum tariffs is more than a political headline—it’s a structural shift that could reshape the U.S. real estate landscape. From rising construction costs to worsening housing affordability, the industry must adapt swiftly or risk long-term disruption. While the tariffs aim to protect domestic industry, their unintended consequences may prove costly for builders, developers, and millions of Americans seeking homes in an already strained market.



Subscribe Now

Leave a Reply