Nolan Gray is a research fellow with the Mercatus Center at George Mason University and a professional city planner.
Americans need more affordable housing. Steel and lumber tariffs are not going to help.
As the nationwide housing affordability crisis deepens, the Trump administration is moving to adopt steel and aluminum tariffs that will make it worse, particularly in dense urban cities. This move follows new tariffs on Canadian lumber late last year and harsher enforcement on the migrant workers from Mexico and Central America who are essential to the industry. The combined effect could mean higher rents and more expensive housing in the years to come.
Earlier this month, the administration signaled it would increase steel tariffs to 25 percent and aluminum tariffs to 10 percent. While the goal is to inject some life into the U.S.’s steel industry—which employs just 143,000 workers, many clustered in the politically important Midwest—the Wall Street Journal and others have pointed out that the tariffs could ultimately hurt employees in much larger steel-consuming industries. President Trump has exempted Mexico and Canada from these tariffs, but these countries only make up 25.61 percent of U.S. steel imports. One industry that will be hit hardest by these tariffs is the construction industry, which could be bad news for renters and prospective homeowners. As new supply continues to fall short of rising demand, this could lead to more pressure on rents and housing prices.
Nearly half of all U.S. steel imports go into construction, with a large share of that steel going into multifamily housing. While wood frame construction is increasingly common for apartment buildings up to five stories, the taller structures that are needed in white-hot housing markets such as San Francisco, New York, and Austin depend entirely on access to steel. According to a study released by the Trade Partnership earlier this month, the proposed steel tariffs could lead to 28,000 lost jobs in the construction industry. That’s a lot of housing that won’t be built, and affordable projects that already operate on tight margins will be the first to be cut. While exemptions from the tariffs might offer hope, the price volatility in the near term could still scuttle many large projects, where price certainty is crucial for investors.
This new tariff follows on the heels of other recent initiatives that hurt new housing construction. Last April, the Trump administration placed a 20.83 percent tariff on Canadian lumber, to the benefit of politically valuable voters in Maine. Within the construction industry, these imports commonly turn into framing lumber, which is used to build single-family homes and small multifamily buildings. As Jen Skerritt pointed out earlier this month in Bloomberg Businessweek, Canada is the major source of this framing lumber, and the rising prices that result from the tariffs mean that builders are already raising prices and looking for ways to cut costs. One alternative is to switch to other materials such as steel or concrete, but this month’s tariffs dash the former alternative.
At the same time that the new tariffs are raising the cost of construction materials, the administration is also cracking down on the labor that puts it all together. One study from the National Bureau of Economic Research found that over 1.1 million undocumented immigrants, many of them skilled in essential trades such as framing, work in the construction industry. There’s no real doubt that the status quo is unacceptable, but the solution is legal status and workers’ protections, not deportations. Although the industry already faces a major labor shortage, the administration is moving to deport many of these immigrant workers and hounding homebuilders who employ them. The result, according to the National Association of Home Builders, is that labor shortages are worsening, particularly in border states with high housing demand like California and Texas. With labor making up such a substantial portion of the cost to build homes and apartments, these shortages will translate into higher rents and housing costs.
All of this comes at the worst possible moment for renters and prospective homebuyers. Rents are rising in cities across the country and affordable units are disappearing. Traditional ways of building new affordable units are also breaking down. Following tax reform, the value of low-income housing tax credits, which subsidize the construction of new affordable units, is collapsing. Local efforts to squeeze new affordable units out of developers through inclusionary zoning in cities like Portland are also proving to be a major disappointment. As life for renters is getting harder, mortgage rates are increasing, which makes it harder for renters to turn into homeowners. There are many reasons why housing is expensive, including overly restrictive land-use regulations, but introducing tariffs and cracking down on immigrant workers will only worsen the crisis.
The White House may be trying to help the small number of workers in the steel and wood products industries, but this kind of protectionism could instead end up hurting them—and a great many others. What Trump wants to see are steel mills that are reopened and a handful of laid-off workers back on the job. What goes unseen are the millions of families who will pay higher rents, the homes and apartments that will go unbuilt, and the Americans who can no longer afford to move to thriving cities.