Study says tariffs will impact new-home construction costs

Cost of imported steel, copper, drywall and lumber expected to raise prices significantly

BIRMINGHAM, Ala. — Tariffs are expected to add significantly to the cost of a new home, according to a recent study by Evernest, a real estate and property management firm based here.

The study determined that tariffs already are having an impact on materials costs such as imported steel, copper, drywall and lumber, causing prices to rise from a low of $26,180 in Oklahoma to $102,000 in Hawaii.

Using a standard 2,200-square-foot home as a baseline, the firm calculated each material’s share of the total construction cost, based on National Association of Home Builder benchmarks. This resulted in a 15.92% estimated increase in material costs. Additional factors used to determine how much each state would be affected on average included labor, permits and mortgage rates.

Hawaii was the state with the highest cost difference related to tariffs. They added about $102,445 in additional costs, bringing the price of an average home to $1,092,445, or $496.57 per square foot, up from $450.

It was followed by California, where the price of an average home would increase by $68,297, to $798,297, or by $331.04 per square foot; Massachusetts, where the price would rise by $62,605 to $667,605, or by $303.46 per square foot; New York, where the price would also rise by $62,605 to $667,605, or $303.46 per square foot; and New Jersey, where the price would rise by $54,637, to $582,637, or $264.84 per square foot

Others in the Top 10 included Alaska with an increase of $51,222 to $546,222; Connecticut, with an increase of $48,946 to $521,946; Rhode Island, also with an increase of $48,946 to $521,946; Colorado and Maine, each with an increase of $45,531 to $485,531.

The next seven on the list, including Minnesota, Montana, New Hampshire, Oregon, Vermont, Washington and Wyoming, also saw their costs rise by $45,531 to $485,531.

Trailing at the bottom of the list were Oklahoma, Mississippi and Alabama, with an increase of $26,180 to $279,180, followed by West Virginia, Louisiana, Kentucky and Arkansas, with an increase of $27,319 to $291,319. In the next eight states on the list, South Dakota, Ohio, North Dakota, Nebraska, Missouri, Kansas, Iowa and Indiana, construction costs rose by $29,595 to $315,595.

For the full list of 50 states, click here and click on the Index and Raw Data tab at the top of the chart.

“Tariffs on building materials are pushing up the base price of new homes in every state,” a spokesperson for Evernest said of the results of the study, adding that for younger buyers, these increases are a significant barrier “and not just a line item. The data shows that these policies affect real affordability, especially in places where incomes haven’t kept pace with construction costs.”

Not so ironically from a timing standpoint, the National Association of Home Builders reported earlier last month that more than 1,000 builders and others involved in residential housing construction went to Washington June 11 to voice support for policies that will help them boost production and the quality of affordable housing. Collectively they held 250 meetings with elected representatives to support several key issues that could help achieve this result.

These key issues included:

+ Energy Codes: The NAHB said it is urging Congress to pass legislation that will prevent the U.S. Department of Housing and Urban Development and the U.S. Department of Agriculture from requiring a minimum energy standard that raises housing costs and prices out potential buyers. They noted that compliance with the 2021 International Energy Conservation Code, for example, can add between $22,000 and $31,000 to the price of a home. They also encouraged Congress to pass the Energy Choice Act, which the group said would prevent state and local governments from banning the use of natural energy in new homes. “A gas ban would exacerbate the housing affordability crisis by increasing costs on new homes, eliminate consumer choice and further strain America’s already stressed electrical grid,” NAHB said.

+ Workforce development: The group urged lawmakers to pass the Constructs Act, which it said “will help prepare adults for rewarding careers in construction and other essential trades. It also encouraged Congress to implement reforms to the Job Corps program which it believes will “strengthen the federal government’s approach to workforce training.”

+ Tax Policy: The group finally urged Congress to pass a tax package that: “Permanently externs pro-business and pro-housing policies from the Tax Cuts and Jobs Act; Provides more resources for affordable rental housing by expanding the Low-Income Housing Tax Credit and addresses limitations placed on the state and local tax deduction cap that burden homeowners in high-cost areas.” It also encouraged the preservation of long-standing energy tax incentives including the Section 45L New Energy Efficient Home Credit, the Section 25D Residential Clean Energy Credit and the Section 48E Clean Electricity Investment Act. “Builders and remodelers have made significant business investments to comply with these credits, which offer a voluntary, cost-effective pathway to improving energy efficiency. A sudden termination of these credits would undermine these efforts.”

The Evernest study mentioned earlier in this story was published a day after these meetings held in Washington. Had the information been readily available, perhaps there also would be firm advocacy for a sensible tariff policy. Because if the tariffs continue as they stand currently, any shift toward the development of affordable housing could easily diminish. As these tariff-related costs become more evident, it behooves the NAHB and other professionals in the homebuilding segment to take a stand against tariffs that is consistent with its overall support of affordable housing initiatives.