President Donald Trump’s tariffs have created the “perfect storm” at the wrong moment for the housing industry, California builders say.
The California Building Industry Association estimates tariffs have driven up the cost of an average-size new home by $20,000 to $30,000.
That comes from tariffs on appliances, certain counter tops and other miscellaneous items that “at the end of the day, really add up,” according to Dennis Fitzpatrick, owner of Fitzpatrick Homes in Modesto.
The industry was already struggling, particularly in California, because of increased costs. They face rising fees from local governments and a shortage of space and labor to build. The added cost and uncertainty of tariffs have pushed it that much further, builders say.
“This created the perfect storm of the wrong kind,” said David Logan, director of Tax and Trade Policy at the National Association of Home Builders. “All the stars aligned for the worst outcome.”
The tariffs against China increased from 10 percent to 25 percent in May on about 500 items involved in housing, such as appliances, nails, lighting, laminate, tile, cabinets and other common finishes in housing made from aluminum, steel and lumber.
The home builders association estimates the tariffs will ultimately cost home buyers $2.5 billion per year nationwide. Facing those costs, builders such as Fitzpatrick have to find other materials to use in homes or pass the charges directly on to their customers — those looking to build or renovate their homes.
Trump has billed the tariffs as necessary to fight unfair actions by China, including intellectual property theft. He consistently says that China is paying the tariffs, though experts agree that consumers are the ones who end up paying for tariffs.
While the tariffs are not the most cost prohibitive part of building a home, particularly in California, they can price some families out of the market.
Dan Dunmoyer, president of the California Building Industry Association, said increasing the cost of $500,000 home in the state by even $10,000 would price out thousands of families. The median price of a home in California in June was $611,000 according to state data.
“So it is a tipping point for those families,” Dunmoyer said. “But so many other things have pushed it up to that point,” he added, citing the expensive and unregulated community fees assessed by local governments.
New tariffs are going into effect this week. They don’t target housing products, but the builders worry that the costs to consumers will make it more difficult for people to save up money for a down payment.
Logan says the long-term effects of these tariffs could choke off new construction, and they’re leading builders to focus on catering to people with higher incomes or encouraging those with moderate incomes to build with less space.
“I’ve heard of instances when projects have had to stop because of pricing changes in the the middle of a project,” Logan said.
Fitzpatrick said his company has stopped offering some products, such as quartz, because of the tariffs. If customers ask for it, Fitzpatrick said the company warns them it will cost them a lot more.
His company stopped buying cabinets from China, which nearly doubled in price, and instead started buying them from Mexico. Trump has said the tariffs would encourage the buying of more American-made products.
Already, the inflationary tendencies of tariffs have meant that many distributors will increase costs before a tariff has gone into effect, Fitzpatrick said. If a project will take a year or more, distributors anticipate a tariff might happen and therefore increase costs to cover that possibility.
“Then you’re trying to get loans when you don’t know what the cost will be in a few months,” Fitzpatrick said. “I’d say the uncertainty is costing more than the actual tariffs.”