A: Bay Area real estate is quite varied. Rising costs present different challenges to builders of large tracts of new homes, remodelers of existing homes, or developers of high rise or multi-unit housing projects. Single-family homes in the Bay Area suburbs utilize very little steel and aluminum.
Aaron Terrazas, senior economist at real estate website Zillow, estimates steel and aluminum represent 0.5 and 1 percent of a new home’s cost. That means, a newly constructed million dollar home in the Bay Area might expect to see a less than $2,000 cost increase based on the proposed tariffs.
Lumber tariffs enacted in April of 2017 have been credited with raising the cost of lumber about 30 percent. These cost increases have been passed through to consumers in the form of higher prices.
Previous increases haven’t appeared to slow the red hot Bay Area real estate and remodeling market, and I wouldn’t expect the new tariffs to either. High rise and multifamily projects may feel the effects of steel and aluminum tariffs more acutely. Both these types of construction, especially high rise construction, rely heavily on the use of steel and aluminum. High land and labor costs, (San Francisco being the highest) combined with governmental set asides, have contributed to tight margins for developers who rely greatly on steel and aluminum.
US President Donald Trump on Thursday signed off on controversial tariffs on steel and aluminium, which will come into effect in 15 days.
Canada and Mexico will be exempt from the levies of 25% on imported steel and 10% on imported aluminium, while there is the possibility of modifying or removing the tariffs for other countries.
“A strong steel and aluminum industry are vital to our national security,” Trump said.
“You don’t have steel, you don’t have a country.”
Trump’s sudden push for the tariffs last week triggered fears of a global trade war and rattled financial markets.
Once the effects of these cost increases reaches the marketplace, two things can be expected. There will be higher prices and fewer projects being built.
Ultimately, the result will be tighter markets for new and existing housing in San Francisco and the Bay Area. Of course, tighter markets generally mean higher prices, a trend tariffs on lumber products has already demonstrated.
Mary Lou Castellanos, Sotheby’s International Realty, (415) 901-1769,
A: I am afraid the Twitter-in-Chief flunked Economics 101. The nation imports about 60 percent of the steel and aluminum we use in domestic manufacturing. Thus, when the components that go into our domestically made cars, planes, appliances, containers, pipes, and steel beams cost more, so will the end products.
Price increases put inflationary pressures on the economy, including pressure on real estate interest rates. Of course, initially the people employed in our steel and aluminum manufacturing industry—all 150,000 of them—will be better off.
But give it enough time: they too will be going to the grocery store and be faced with a lower purchasing power, they too will want to borrow money to buy a house and be faced with higher mortgage rates.
The above is just one of the many negative effects of tariffs. There are no simple answers, other than the inescapable fact tariffs are not to the advantage of domestic consumers, which is the reason economists oppose them.
Sadly, this negative effect will be felt in all sectors, including real estate. We can just hope the Twitter-in-Chief will continue to modify his initial stance and soften the blow.
Astrid Lacitis, Vanguard Properties, (415) 860-0765, firstname.lastname@example.org.
A: In my humble opinion, I don’t see much affect on our real estate market with these tariffs…..just yet. Canada and Mexico are spared from the tariffs, at least for the time being. Canada being the leading supplier of steel to the United States accounts for 16 percent of the import, which shields us for now.
At a macro level, trepidation of a trade war is in the air with China being the main target of the Trump Administration. Even though China’s import of steel is around 4 percent to the United States, according to a recent Politifact report. However, China is now the largest and most powerful producer of steel in the world. The majority of their steel is used locally, but they also sell it on the global market having more than abundant supply on hand. One nation having a heavy surplus could potentially affect other producers, including Canada.
If tension between the United States and China escalates, we the consumers will pay the additional costs of trade war. Not just in real estate, but everything else that uses steel or aluminum.
Par Hanji, Paragon Real Estate Group, (415) 307-5110, email@example.com.