The affordability of building homes in Houston, a city known for its relatively low construction costs, faces significant challenges due to rising inflation and impending tariffs under President Donald Trump’s administration. The proposed tariffs on major U.S. trading partners are expected to increase the cost of homebuilding materials, potentially adding $8,300 to $12,500 to the price of a median-sized, 2,000-square-foot new house, according to estimates from Cotality, formerly CoreLogic. These tariffs, along with existing economic pressures such as high inflation, escalating land prices, and labor shortages, pose a considerable threat to the housing market.
President Trump’s sweeping tariff plan, which was announced on April 2, introduced a universal 10% tariff on most imports and, more notably, raised tariffs on Chinese goods to 145%. With imports from China comprising a significant portion of building materials, the construction sector finds itself vulnerable. Notably, 54% of appliance imports alone come from China. While some Canadian goods remain exempt due to the U.S.-Mexico-Canada Agreement (USMCA), complexities in compliance mean many materials may still face tariffs.
The impact of rising costs is exacerbated by imminent tariffs on softwood lumber from Canada, expected to increase beyond the current 14.5% anti-dumping tariff to 34.5% later this year. This, alongside potential tariffs on steel, aluminum, and semiconductors, could drive up costs for builders, already grappling with a record high of construction costs accounting for 65% of a new home’s price.
Experts predict that the increased expenses will likely be transferred to buyers, challenging affordability even further. The National Association of Home Builders (NAHB) estimates that every $1,000 increase in home prices renders the median-priced home unattainable for an additional 2,740 households in Houston. This shift threatens the availability of affordable entry-level homes, with only 40% of households able to afford the median home price of $340,200 as of late last year.
Despite this, the robust migration and population growth in Houston provide a potential buffer, maintaining demand for housing. However, builders face the challenge of sustaining their profitability amidst rising costs. Some developers, like Kim Dudley-Dixon of Kimberly Lane Properties, have managed to mitigate early cost increases by securing land in advance, whereas others, such as William Merrick of Whitestone Developments, express varied responses to the economic landscape.
The housing industry remains on edge, with current supply levels allowing for short-term stability, but the prolonged effects of tariffs could lead to a supply shortage. The uncertain economic environment, coupled with potential market volatility affecting mortgage rates, underscores the complexities faced by builders and buyers alike in Houston’s housing market.