CONSTRUCTION OBSTRUCTION
Tariffs trigger higher costs for imported lumber and steel, stalling projects and forcing redesigns
The Bay Area has any number of reasons for its historically low housing growth — high labor costs, soaring land prices, tight zoning laws.
Add another challenge to building new homes and apartments in the region — tariffs.
Levies on imported lumber and steel have become an emerging threat to residential projects in the housingstarved Bay Area, local developers and analysts say. The tariffs have driven up costs and stalled projects while mandating redesigns and sending builders scrambling to find savings elsewhere.
New construction on apartments, condos and communities for middle- and low-income families could feel the brunt of rising material costs, analysts say.
“We’re building, but we’re not building fast enough,” said Sean Randolph, senior director of the Bay Area Council Economic Institute. “Increasing housing costs due to tariffs doesn’t help.”
President Donald Trump in April 2017 placed tar-
iffs averaging 20 percent on Canadian softwood lumber, driving up prices on domestic and imported wood. The U.S. produces about twothirds of the lumber needed for domestic construction. The remaining supply is imported, with about 95 percent of imports coming from Canada.
Many foreign suppliers of two other common construction materials, steel and aluminum, were hit in March with tariffs of 25 percent and 10 percent, respectively.
Home builders are starting to feel the pinch. Housing construction starts nationally fell 12 percent in June, with builders blaming a rapid rise in lumber prices.
Lumber — from structural to finishing pieces — accounts for the largest material cost of building a new home. The median price for a new house in the U.S. is $369,000, with wood materials costing about $20,000, an increase of about $7,000 in the last year. Lumber costs in California are roughly the same as in the rest of the country.
David Logan, a senior analyst with the National Association of Home Builders, said lumber prices have gone up almost 50 percent since the beginning of last year.
Residential building permits in San Francisco and the East Bay are up about 2 percent from last June, while permits for new homes and apartments in the San Jose metro area have dropped nearly 10 percent, according to U.S. census statistics.
Logan said the full impacts of tariffs likely will show up later in construction data, but developers are now talking about a slowdown. Builders have changed business strategies to target upscale homebuyers who can afford the price increases, he said.
When financing projects depends on shaving tenths of a percent from costs, double-digit increases for materials can sink projects, developers say. Builders have redesigned homes to use less lumber. Higher steel prices have hurt high-rise construction and made steel a less attractive alternative to wood framing in singlefamily homes.
RAD Urban, based in Oakland, found a formula to reduce construction costs in the Bay Area. The company builds housing modules, step-by-step, in a Central Valley factory. The steelframed units are shipped to construction sites and assembled — saving time and money. The company estimates it can build a highrise apartment tower for 20 percent less than traditional construction.
Then came the steel tariffs.
“These sorts of pressures are working against us,” said Jason Laub, RAD Urban senior vice president. “We’re trying to change the way we build.”
Steel costs for RAD Urban and their suppliers rose 30 percent this year, Laub said. The company stopped construction on a commercial and residential tower so engineers could redesign the entire project. A planned 29-story tower on Webster Street in Oakland was cut to 15 stories, with fewer and smaller units.
In a hypothetical, $130 million project, about $20 million would be budgeted for steel, Laub said. Adding an additional $6 million for steel can make the difference between a project getting built or plans lying untouched.
RAD Urban is looking for alternative steel suppliers to keep building, he said. The company wants to buy steel from U.S. companies, Laub said, but it may be forced to import from foreign factories exempted from the tariffs.
“If we can’t hit our numbers,” he said, “then we don’t have our project.”
Lumber costs have knocked developers with ambitious plans to attack the region’s housing shortage. “We’ve had to stop projects,” said Josh Roden, president of the Bay Area division of Brookfield Residential.
The developer with new residential projects in Dublin and Oakley halted construction in order to redesign homes and lower costs. The company did not want to substantially raise prices on the developments and lose its target customers, he said. The new single-family homes in Dublin start at about $1 million, and townhomes are priced around $800,000.
Engineers sought to reduce the amount of lumber by changing the size and shape of walls, decks and windows. The new plans still met the strict earthquake building codes required by the state, Roden said.
“A lot of groups are looking at their design engineering,” Roden said. “You can’t push prices forever.”
Other Northern California developers report similar challenges. During the last year, Ponderosa Homes saw lumber prices rise by 33 percent and metal costs increase by between 5 and 15 percent on parts such as garage doors, heating and air conditioning ducts and trim.
Logan said builders don’t expect a quick fix — earlier trade disputes over lumber have taken at least five years to resolve.
The trade skirmishes have lasted for 18 months. In July, the Trump administration proposed another round of tariffs on $200 billion worth of Chinese imports. The duties would be imposed after Aug. 30.
Logan expects developer costs to rise again, with new levies placed on nearly 500 products used by builders, including hand tools, light fixtures and “literally, kitchen sinks.”