Construction Costs Surge Amid Tariff Concerns
As the U.S. construction industry braces for potential tariffs, significant price hikes are becoming evident in the real estate sector. Jon Paul Pérez, CEO of Related Group, a major developer, has reported that contractors are increasing their project costs by as much as 20% to mitigate the risks associated with incoming tariffs.
Background on Tariffs and Their Impact
Following recent tariff implementations by the Trump administration—specifically, a 25% levy on certain imports from Canada and Mexico including steel and aluminum—contractors are beginning to adjust their pricing strategies in anticipation of broader tariffs expected to take effect on April 2. This preemptive move is a response to growing uncertainty regarding cost inflation and the availability of materials.
Pérez noted during a CNBC interview that subcontractors bidding on Related Group’s projects are incorporating additional financial cushions into their estimates, citing the potential for price spikes based on imported materials. “We’re seeing [subcontractors] throw an additional cushion into their numbers anticipating tariffs,” Pérez remarked. “It could be as much as 20%, depending on what material they’re getting from another country.”
Financial Implications for the Real Estate Market
The anticipated rise in material costs could exacerbate the existing affordability crisis in the housing market, which has already been under pressure from elevated mortgage rates. The National Association of Home Builders has projected that escalating construction material prices could increase the cost of a typical home by approximately $9,200.
Related Group, recognized as one of the largest developers in the United States, is currently managing over 90 projects that range from affordable housing to luxury condominiums primarily located in South Florida. While the luxury segment remains resilient—with notable sales such as two penthouses on Fisher Island fetching a combined $150 million—the mid-range market is experiencing caution among potential buyers.
Challenges from Immigration Policy
In addition to tariffs, Jorge Pérez, founder and chairman of Related Group, expressed concerns regarding the tightening of immigration policies. The construction industry heavily relies on the labor force consisting of immigrant workers, and any limitations could lead to further inflationary pressures. “There will absolutely be a cost effect in our industry, in particular the construction industry,” he asserted, noting that a reduction in available labor could significantly impact pricing.
Market Dynamics in Florida
While high-end buyers—especially those purchasing $10 million-plus condominiums—remain largely unaffected by market fluctuations, the lower mid-range segment ($1 million to $3 million) is adopting a more cautious approach. Pérez highlighted the anxieties of international buyers, particularly from Canada and Latin America, who are apprehensive about future immigration policies and their implications on residency status.
“South Americans are coming and saying, ‘What’s going to happen with immigration policies?’ or, ‘Am I going to lose my visa?’” Pérez explained, detailing instances where potential buyers withdrew from agreements due to tariff-related uncertainties.
Conclusion
The evolving landscape of the construction industry, driven by external factors such as tariffs and immigration policies, presents a challenging environment for real estate developers. As Related Group adapts to these changes, the broader implications for housing affordability and market dynamics in Florida remain to be seen.
