As President Donald Trump ushers in a slew of new policy changes, the proposed 25 percent tariffs on imports from Canada and Mexico—if implemented after the recently introduced 30-day pause—could significantly escalate the cost of lumber, further complicating the already strained U.S. housing market.
Some experts predict a near-tripling of costs that could undermine home affordability at a time when the nation grapples with a housing crunch.
Why It Matters
The potential for rising lumber costs comes at a time when the U.S. housing market is already navigating a maze of affordability issues, driven by skyrocketing construction costs and a shortage of available homes.
Some experts speculate tariffs could exacerbate these challenges, making it harder for builders to procure affordable materials and for buyers to find reasonably priced homes.
According to Carl Harris, chairman of the National Association of Home Builders (NAHB), over 70 percent of softwood lumber and gypsum, which is used in drywall, originate from Canada and Mexico and serve as critical construction materials.
What To Know
In a recent analysis, Robert Dietz, chief economist at the NAHB, outlined the risks posed by tariffs as it relates to lumber costs.
"Tariffs on lumber are a near-term concern, with the existing duty rate expected to increase from a current 14.5 percent rate to near 40 percent later this year," Dietz said on Wednesday. "An additional 25 percent tariff could strongly affect lumber costs. This is why regulatory reform that reduces the cost of land development, home construction and remodeling is now even more critical for improving housing attainability."
Per Dietz, not only could they nearly triple the cost of lumber, a critical component of home building, but they would also drive up prices for consumers, putting homeownership out of reach for many Americans.
Canada stands as one of the leading global producers and exporters of softwood lumber, according to NC State University's College of Natural Resources.
"Up to 30 percent of softwood lumber consumed in the U.S. each year comes from Canada. A small portion of the total market share is captured by other countries," Rajan Parajuli, an associate professor of forest economics and policy at NC State University, said in a recent article.
In 2023, the U.S. brought in 28.1 million cubic meters of this lumber from Canada, predominantly for use in building homes and commercial properties.
U.S. companies may try to offset tariff-related losses by hiking the prices of Canadian softwood lumber, which could lead to higher costs for building materials and impact the housing market, Parajuli wrote.
However, Zoltan van Heyningen, executive director of the U.S. Lumber Coalition, said lumber only accounts for approximately 1.3 percent of the total cost of an average new construction home, and an even smaller percentage in more expensive homes.
"The idea that longstanding antidumping or countervailing duties or President Trump's tariffs on unfairly traded Canadian lumber imports would cause lumber prices to dramatically increase home prices is nonsensical," van Heyningen said in a February 1 release.
Trump has temporarily paused the implementation of tariffs against Canada and Mexico, providing a 30-day window for further negotiations aimed at addressing broader trade and security issues. This decision offers a momentary reprieve from the potential spike in construction costs.
However, tariffs on Chinese imports remain in effect, which could still influence the broader economic landscape, including sectors beyond housing.
"We commend President Trump for reaching an agreement with Canada and Mexico to delay the proposed tariffs, avoiding additional strain on a housing market already facing affordability challenges," said Harris in a recent statement.
What People Are Saying
Dan Hnatkovskyy, CEO of artificial intelligence (AI)-powered marketplace Jome, formerly NewHomesMate, previously told Newsweek: "Tariffs on materials like lumber, much of which is imported from Canada, could drive up construction costs if tariffs increase."
"Additionally, policies on migration and border control play a role. A portion of the construction workforce, especially in the South and Southeast, consists of undocumented immigrants. If stricter immigration policies are enforced, this could lead to a construction labor shortage, further complicating housing affordability."
Carl Harris, chairman of the NAHB, said in a February 1 statement: "Tariffs on lumber and other building materials increase the cost of construction and discourage new development, and consumers end up paying for the tariffs in the form of higher home prices."
Rajan Parajuli, an associate professor of forest economics and policy at NC State University, said in a recent article: "Tariffs unequivocally work towards pushing domestic lumber prices higher. When that happens, it usually adds up to higher costs for consumers."
Zoltan van Heyningen, executive director of the U.S. Lumber Coalition, said in a recent press release: "Simply put, the cost of lumber doesn't move the needle when it comes to the price of a new home. Lumber prices saw all-time highs during the COVID-19 pandemic in 2020-21. Lumber prices today are a third of those high prices, but new home prices have continued to climb."
Andrew Miller, chairman and owner of Stimson Lumber Company, said in a recent press release: "Continued strong enforcement of the U.S. trade laws against unfairly traded Canadian lumber imports is exactly what must happen to keep expanding U.S. lumber manufacturing and availability to build more American homes."
What Happens Next
As the 30-day pause on Canada and Mexico tariffs continues, attention is focused on whether the Trump administration can reach a conclusive agreement with Canadian and Mexican officials.
If no deal is struck, the proposed tariffs are set to take effect in early March, potentially increasing costs and further impacting the housing market.
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