From Tariff Trouble to Opportunity: Real Estate’s New Playbook

Rising U.S. tariffs on imported construction materials are creating new headwinds for multifamily real estate—but they’re also opening the door to strategic advantages for informed investors and operators.

In 2024–2025, trade policy has become a key player in real estate decision-making. Here's what’s happening, how it’s affecting the market, and what you can do about it.

The Tariff Landscape: What's Changing?

The U.S. continues to maintain and expand tariffs on several essential building materials:

25% on imported steel and 10% on aluminum, now extended to imports from Mexico and Canada¹
Up to 14.5% tariffs on Canadian softwood lumber, with increases proposed to double the rate by late 2025²
New 10–25% tariffs on Chinese goods, including appliances, cabinets, fixtures, and construction components³

These measures are part of broader economic and political strategies to encourage domestic manufacturing. But for builders and investors, they act as a cost multiplier.

According to the National Association of Home Builders (NAHB), these tariffs have added $7,500–$10,000 to the cost of constructing an average home⁴. In multifamily, where economies of scale should work in your favor, those cost pressures are amplified by project size, labor tightness, and logistics.

Even more concerning for developers: the uncertainty around tariff timing and scope. Some material suppliers now build risk premiums into bids, making it harder to forecast costs and close pro forma gaps.

How Tariffs Are Impacting Multifamily Real Estate

Tariffs don’t just hit budgets—they impact viability.

Multifamily projects heavily depend on materials like steel, aluminum, and lumber. If these costs rise by even 5–10%, it can sink a project’s internal rate of return (IRR) or delay construction for months. Many general contractors report difficulty locking in quotes longer than 30–60 days.

30–35% higher construction costs compared to pre-2020 levels
A 70% decline in multifamily starts since 2022⁵

Additionally, project delays are rising as developers reprice scopes or re-engineer designs to avoid high-tariff materials. These moves ripple out into lender timelines, interest carry costs, and projected lease-up schedules—creating more conservative financing and less competition.

And it’s not just structural materials. Many interior components—light fixtures, bathroom hardware, cabinets, even flooring—are caught in the web of tariffs. Developers must either pay more or swap in lower-quality or less-preferred substitutes, which can affect leasing appeal.

Supply Tightens, Rent Pressure Builds

While the multifamily sector delivered a record number of new units in 2023 and 2024—over 440,000 units in 2024—this pace is not sustainable amid rising costs.⁶

As developers scale back or shelve deals, we’re already seeing a drop in planned construction activity:

New multifamily starts are projected to decline 45% from pre-pandemic levels
Fewer completions will lead to tighter unit availability by 2026

Meanwhile, demand remains strong in most markets—especially Sun Belt metros, secondary growth markets, and areas with net positive migration.

Tighter inventory
Occupancy rates above 94%⁷
Rent growth rebounding by 2025–2026⁸

As supply dwindles and demand persists, owners of existing assets are in a favorable position.

Institutional investors are already responding. In late 2024, Blackstone⁹ and other major players increased their multifamily allocations, anticipating a tighter rental landscape over the next 12–24 months.

How Operators Are Adjusting

Developers and property managers are quickly rewriting their playbooks:

1. Smarter Design & Value Engineering

Reducing material volume in construction
Avoiding tariff-heavy items (steel framing, imported windows)
Simplifying unit interiors where possible

2. Local Sourcing & Price Locking

Partnering with domestic or tariff-exempt vendors
Negotiating fixed pricing for bulk orders
Stockpiling long-lead materials before tariffs increase

3. Modular & Prefab Adoption

Modular bathrooms, wall systems, and MEP panels reduce labor and material waste
Shorter construction timelines help offset interest carry

4. Renovation > Ground-Up

Adaptive reuse and value-add renovations require less exposure to raw materials
Less permitting and less supply chain exposure

5. Bigger Contingencies, More Flexibility

Savvy sponsors now include 8–15% cost overrun buffers
Flex scope planning allows projects to downsize without compromising delivery

What Passive Investors Should Know

Tariffs and trade pressures are shaping where—and how—you should invest in multifamily real estate.

Look for sponsors who:

Have built projects in high-cost environments
Can explain their sourcing strategy clearly
Are working with experienced GCs
Can show they've delivered on time and on budget

Prefer markets where:

New construction is slowing
Demand is holding strong
Local policy is pro-growth or anti-restriction

Understand the replacement cost gap:
Many properties today are trading well below what it would cost to build them. That creates a natural moat—and future rent growth.

If a sponsor is buying Class B units at $180K per door, and new build Class A costs $300K+ per door in that same market, there's clear room for margin and rent lift.

Final Thoughts

Multifamily is entering a more selective, more strategic cycle. Tariffs may be adding cost and uncertainty—but they’re also creating pricing power for existing assets and disciplined advantage for thoughtful operators.

In short:

Less new supply = more rent opportunity
Higher build costs = stronger value for existing stock
Proactive teams = better investor protection and upside

The bottom line? Investors who understand these dynamics—and choose the right deals and partners—can do more than weather this market. They can thrive in it.