With the deadline fast approaching for new tariffs from the Trump administration, builders in Southern California are weighing the possibility of delaying or halting construction projects due to rising material costs. The National Association of Home Builders (NAHB) anticipates that tariffs set to take effect on April 2 will increase the cost of imported construction materials by over $3 billion, exacerbating the impact of the 14.5% tariff on Canadian lumber, pushing the total duties on imported lumber from Canada to a steep 39.5%.

Peter Tateishi, CEO of the California chapter of the Associated General Contractors of America, remarked, “We’re already seeing increases on the costs of lumber and gypsum over the last month. If, on April 2, these tariffs go into full effect, then we will see significant increases.”

Major Projects on Hold Due to Tariff Uncertainty

In light of these impending price hikes, two developers have informed Tateishi about their plans to delay or even cancel major building contracts. These include a $150 million mixed-use project in Los Angeles County, which was set to include retail spaces on the lower floors and condos on the upper levels, and a $55 million multifamily development in Orange County. “There are questions about whether we can continue to build out at the pricing with tariffs in place, and whether it will pencil out — even for basic remodeling,” Tateishi said.

Todd Tomalak, a building products adviser with Zonda Home, shared concerns about the wider impact on the homebuilding sector. He expects the tariffs to introduce "uncertainty in prices," particularly in the lumber market, and anticipates a slowdown in new homebuilding during the spring selling season. “The tariffs are going to impact where lumber prices are for a couple of months from now,” Tomalak noted, highlighting the potential for slower demand and increased costs in the months to come.

Impact on Homebuilder Confidence

The tariffs are already affecting builder confidence, which fell to its lowest level since August of last year. According to Robert Dietz, chief economist at NAHB, homebuilders in March indicated that tariffs could add $9,200 to the cost of building a home. The United States relies heavily on imported raw materials, appliances, and other components, with approximately 7.3% of materials used in single-family home and apartment construction being imported, a significant portion of which comes from Canada and Mexico.

The impending tariffs come on top of existing duties on imports from China (20%) and steel and aluminum imports, with a 25% tariff on steel (50% on Canadian steel) that went into effect on March 12. Tomalak predicts that the U.S. economy will likely slow down in 2025 as it absorbs the impact of the tariffs, coupled with rising inflation concerns and ongoing labor shortages.

Pre-buying and Inventory Challenges Ahead

As builders brace for the April 2 tariff deadline, many are engaging in pre-buying materials to avoid anticipated price hikes. However, Tomalak foresees challenges with inventory, as some builders may overstock in anticipation of price increases while facing slower-than-expected demand. “What you could see is a situation where you have a bunch of extra pre-buying and, at the same time, slower demand than what some companies were expecting — which means they’re sitting on extra inventory,” he said.

In contrast, other builders are holding off on pre-buying and waiting until the last minute to make purchases, hoping for potential price drops after the tariff impact settles. “There are just a lot of factors that, in addition to the tariffs over the next two months, are going to cause a lot of volatility in prices,” said Tomalak. “We think the way the spring selling and remodeling seasons shake out will be real critical to where prices are by June.”

The next significant measure of homebuilding sentiment will come with first-quarter financial reports in April, which may provide further insight into the industry’s response to the tariff pressures.

Lumber Industry Shakeup in the Wake of Tariffs

As lumber prices continue to fluctuate, Tomalak also predicts a shift in the lumber supply chain. Builders are increasingly exploring alternatives to Canadian lumber due to the ongoing tariff hikes. Since 2020, building material costs have surged by 34%, according to the NAHB, prompting builders to consider options beyond traditional suppliers. Tomalak cited a recent $11 billion buyout of Beacon Roofing Supply by QXO, a move that could reshape the building products distribution industry. “This is just the first step,” Tomalak said, hinting at potential changes in how builders source materials in the future.

Meanwhile, Tateishi mentioned that some of his members are already looking to Germany and Scandinavian countries for softwood lumber supplies, even though these countries lack the volume of lumber that Canada provides. “We are identifying places that we are going to turn to,” Tateishi explained. “There isn’t a need to start buying from them yet, but we are thinking about the places that aren’t getting tariffs. Basically, we’re bracing for what might happen,” he added.

Volatility Ahead for the Construction Sector

As the April 2 tariff deadline approaches, builders across the U.S. are facing a precarious period filled with uncertainties. Material price hikes, along with possible delays in construction schedules and rising costs, are set to continue impacting the housing sector. In Southern California, this is particularly felt as local builders and developers balance between absorbing the rising costs and maintaining profitability.

Tomalak emphasized, “We’re watching this very closely over the next few months,” noting the importance of how the spring selling season plays out in determining the future direction of the market.

What Lies Ahead for Builders and the Economy

Looking forward, the uncertainty in the housing market is likely to affect everything from pricing to labor availability. With ongoing volatility and significant pressure from both tariffs and inflation, the construction industry faces a difficult road ahead. Builders will need to adapt to the new realities of an evolving trade landscape and its impact on the housing market and broader economy.

Originally reported by Pat Maio in Press telegram.