Southern California builders reconsider projects ahead of new tariffs

With a deadline nearing on the next wave of tariffs from the Trump administration, builders are facing the prospect of halting or slowing construction projects as prices for materials continue to rise.

The National Association of Home Builders expects new tariffs starting April 2 will raise the cost of imported construction materials by more than $3 billion. Those price hikes would be on top of a 14.5% tariff on Canadian lumber, pushing up duties on imported lumber from the north to 39.5%.

“We’re already seeing increases on the costs of lumber and gypsum over the last month,” said Peter Tateishi, chief executive officer of the California chapter of the Associated General Contractors of America in Sacramento. “If, on April 2, these tariffs go into full effect, then we will see significant increases.”

In the past month, two developers have privately told Tateishi about plans to delay — or halt permanently — major building contracts due to uncertainties over the tariffs. One is a $150 million mixed-use project in Los Angeles County with retail on the first two floors and condos in the upper floors. The other is a $55 million multifamily project in Orange County.

“There are questions about whether we can continue to build out at the pricing with tariffs in place, and whether it will pencil out — even for basic remodeling,” he said.

Others in the building industry are feeling the same trepidation.

Todd Tomalak, a Newport Beach-based building products adviser with Zonda Home, sees challenges and “uncertainty in prices” ahead for the homebuilding and building products markets.

“The tariffs are going to impact where lumber prices are for a couple of months from now,” he said, pointing to evidence that the spring selling season could be slower for new home building.

Also see: How new tariffs will U.S. slow homebuilding, boost labor costs

Trump’s tariff push put a pall on homebuilder confidence, which tumbled this month to its lowest level since last August. Builders in the March survey said tariffs would likely boost prices $9,200 per home, according to Robert Dietz, chief economist at NAHB.

U.S. builders rely heavily on raw materials, appliances and many other components made abroad. About 7.3% of products used in single-family home and apartment building construction are imported, NAHB said. Of those, nearly a quarter come from Canada and Mexico.

Both countries account for 70% of the imports of lumber and gypsum. Canadian lumber is used in everything from framing to cabinetry and furniture. Mexican gypsum is used to make drywall.

The White House on March 6 delayed for one month 25% tariffs on certain imports from Mexico and Canada. One of those imports is softwood lumber. Tariffs already in effect include 20% China imports and a 25% tariff on steel and aluminum imports — 50% on those from Canada — which started March 12.

Tomalak expects the U.S. economy will slow this year as the nation absorbs the impact of the tariffs, new worries over inflation and labor shortages.

With the spring bump in homebuying about to kick in, Tomalak said some homebuilders and remodelers already overstocked ahead of the tariffs in order to avoid cost increases.

“So, what you could see is a situation where you have a bunch of extra pre-buying and, at the same time, slower demand than what some companies were expecting — which means they’re sitting on extra inventory,” he said.

Tomalak also see a scenario unfolding in which builders hold back on pre-buying before the April 2 tariff deadline, instead “waiting a week or two or more and try to kind of backfill that order and wait for your job prices to decline.”

“There are just a lot of factors that, in addition to the tariffs over the next two months, are going to cause a lot of volatility in prices. We’re watching this very closely over the next few months,” he said. “We think the way the spring selling and remodeling seasons shake out will be real critical to where prices are by June,” he said.

The next measurement of homebuilding sentiment will come with the first quarter financial reports in April, he said.

Also see: How tariffs on Canadian energy imports will drive California prices higher

Tomalak also expects a shakeup in the lumber industry as homebuilders search for alternative sources with better pricing than Canadian lumber. Since 2020, building material costs have risen 34%, according to the NAHB.

He cited Beacon Roofing Supply’s agreement to an $11 billion buyout from billionaire Brad Jacobs’ firm QXO on Thursday, March 20.

The deal gives QXO, a new player in the building products distribution industry, an advantage into Beacon’s expansive network of branches across the U.S. and Canada.

“This is just the first step,” said Tomalak of the broader shift of who builders may buy from in the future.

Tateishi said that some of his members are looking to Germany and Scandinavian countries for soft lumber supplies — even though they don’t have the supply Canada does.

“We are identifying places that we are going to turn to,” he said. “There isn’t a need to start buying from them yet, but we are thinking about the places that aren’t getting tariffs.

“Basically, we’re bracing for what might happen,” Tateishi said.

The Associated Press contributed to this report.