Navigating Tariffs in Construction and Multi-Family Development: Insights from Industry Experts

On April 28, 2025, a group of construction and multi-family development professionals gathered to discuss the impact of recent tariffs, particularly those outlined in Executive Order 14257, on their industries. The event provided a platform for industry leaders to share insights, address concerns, and strategize on navigating the evolving tariff landscape. Below is a summary of the key points discussed, offering valuable perspectives for contractors, developers, and investors.

Understanding Executive Order 14257: Reciprocal Tariffs

Executive Order 14257 introduces reciprocal tariffs targeting approximately 50 countries, with implementation delayed from April 5, 2025, to July 5, 2025, due to a 90-day hold. These tariffs are calculated based on the tariffs imposed by other countries on U.S. goods.

The Federal Register provides a detailed breakdown of affected countries, tariff percentages, and materials, categorized under the Harmonized Tariff Schedule of the United States (HTSUS) with eight-digit codes. The Annex II of the order specifies materials like particle boards and firewood, offering granular insights into impacted products. Industry professionals were encouraged to review these details to understand the scope and prepare for cost increases.

Key Actions for Contractors and Suppliers

• Review Contracts: Examine prime agreements, subcontracts, and purchase orders for clauses on material escalation and force majeure to address potential supply chain disruptions or shortages.

• Engage Early: Start discussions with subcontractors and suppliers to explore alternates, verify pricing, and ensure timely buyouts within contract timelines (e.g., 30 days of execution).

• Transparency and Collaboration: Work collaboratively across project tiers to mitigate risks, ensuring no single party bears the full burden of tariff-related cost increases.

Steel and Aluminum Tariffs: A Continuation from 2018

Tariffs on steel (25%) and aluminum (increased from 10% to 25%) remain in effect from the 2018 proclamations under President Trump’s first term. These continue to impact construction costs, particularly for projects relying on imported metals. Unlike the reciprocal tariffs, these apply broadly and are not tied to specific reciprocal calculations.

Special Considerations for Canada and Mexico

Canada and Mexico are exempt from EO 14257 and the steel/aluminum tariffs due to existing trade agreements under General Note 11 of the HTSUS. However, specific tariffs apply to energy resources and potash (10% each), which may affect energy-based projects but have minimal impact on general construction.

Industry Challenges: Multi-Family Construction and Development

The discussion highlighted the significant reliance on imported materials in multi-family construction, with an estimated 60-70% of materials sourced internationally. Past tariff experiences, particularly during the first Trump administration, led suppliers to relocate production from China to countries like Vietnam and Indonesia to avoid tariffs. However, the new reciprocal tariffs now target these alternative markets, posing fresh challenges.

For instance, a 46% tariff on Vietnamese goods could increase project costs by 1-3% on a $100 million development, depending on material sourcing. Suppliers may shift production to lower-tariff countries, but such transitions require time and investment. Additionally, ancillary costs, such as fuel surcharges on shipping, further complicate cost management.

Strategic Responses

• Explore Domestic Alternatives: While U.S.-made products may not yet match the quality or cost of imports, contractors are encouraged to evaluate local options to reduce tariff exposure.

• Secure Early Commitments: Release materials early, issue large purchase orders, or store materials to lock in pricing before tariff implementation.

• Educate Trade Partners: Ensure vendors and subcontractors understand tariff implications, including component-specific HTSUS codes, to avoid unjustified price hikes.

The Multi-Family Market: A Cooling-Off Period

The multi-family sector is experiencing a slowdown, likened to a “cooling-off period” similar to 2008-2011. After years of robust growth, with some contractors managing up to 34 projects simultaneously, the market is stabilizing. Key observations include:

• Supply in Charlotte: Charlotte has seen an oversupply of rental units over the past six months, but demand is expected to outpace supply by late 2025 or early 2026, driven by 100+ daily net migrants and 40% of leases signed by out-of-town residents.

• Occupancy Rates: Stabilized multi-family properties in Charlotte maintain healthy occupancy rates of 93-93.6%, though slightly down from COVID-era peaks of 95-96%.

• Condominium Demand: While rental housing dominates, there is potential demand for condominiums in submarkets like South End. However, high land and construction costs make condo development challenging.

Impact on Existing Multi-Family Properties

For owners of existing multi-family properties, particularly older assets from the 1970s or 1980s, tariffs pose unique challenges:

• Capital Improvement Delays: Rising material costs may force owners to postpone projects like roof replacements or cosmetic upgrades, as returns on investment become harder to justify.

• Tenant Sensitivity: Lower-income tenants in older properties are more vulnerable to rent increases driven by tariff-related costs, potentially leading to higher vacancy rates or layoffs if employers face cost pressures.

• Capital Constraints: Investors, particularly individual syndicators, are cautious due to market uncertainty, high interest rates, and rising insurance premiums. Many are holding cash, waiting for clearer tariff and policy outcomes.

Financing and Capital Challenges

The multi-family sector faces a “perfect storm” of high interest rates, inflation, and tariff uncertainties. Deals purchased in 2021-2022 with short-term debt at 2.5-3.5% are now maturing at significantly higher rates, straining cash flows. Institutional capital remains on the sidelines, favoring risk-free assets like 10-year Treasury bills over development risks. However, opportunities exist for investors with ready capital to acquire distressed assets or capitalize on market stabilization expected in late 2025.

Government-Insured Loans as a Solution

Some developers are exploring HUD’s D4 or similar government-insured loan programs, which offer lower, non-recourse interest rates. While these programs involve complex approval processes, they proved effective during the 2008-2009 downturn and may gain traction again.

Looking Ahead: Opportunities Amid Uncertainty

Despite the challenges, industry leaders remain optimistic about the multi-family sector’s long-term prospects, particularly in high-growth markets like Charlotte. Key strategies for navigating tariffs include:

• Proactive Contract Management: Ensure contracts account for material escalation and supply chain risks.

• Market Timing: Prepare for a demand rebound in late 2025 or early 2026, leveraging Charlotte’s strong migration trends.

• Capital Readiness: Position for opportunistic investments as market clarity improves, potentially in Q3 or Q4 2025.

The event underscored the importance of collaboration, transparency, and education in addressing tariff-related challenges. By staying informed, leveraging contract protections, and exploring alternative sourcing, the construction and multi-family industries can mitigate risks and seize opportunities in a dynamic market.

For more details on Executive Order 14257, visit federalregister.gov. To explore tariff schedules, refer to the HTSUS at usitc.gov.