Tag: Tariffs

Navigating Rising Costs and Policy Challenges in CRE for 2025

Posted on by Abigail Grenadier

While CRE leaders are optimistic about 2025, clear headwinds emerging from escalating construction costs and trade policies threaten to slow development activity and increase strain on industry stakeholders. These challenges demand coordinated efforts between policymakers and the private sector to stabilize costs, address labor shortages, and promote balanced trade measures.

Market & Financial Headwinds in CRE Construction

  • The commercial construction sector is facing mounting challenges that could reshape its trajectory.
  • Labor Shortages: Baby boomer retirements are thinning the skilled workforce, with an estimated 5.4% of construction workers aged 65 or older and poised to exit the industry.
  • Simultaneously, a larger share of young adults is pursuing college over the trades, creating a gap in new talent pipelines. Overall, the national number of job vacancies in construction has doubled between 2017 and 2023. (ConnectCRE, Jan. 2 | Construction Dive, Jan. 2)
  • Rising Capital and Material Costs: Construction loans are difficult to get and relatively expensive, with interest rates hovering above 8%, while material costs remain elevated due to inflation and lingering tariffs on construction imports like lumber, steel, copper, and cement. (ConnectCRE, Jan. 2)

Tariff Proposals

  • Recent trade and policy developments could exacerbate these challenges.
  • Trump Administration’s Tariff Proposals: President-elect Trump has proposed sweeping tariff increases, including a 60% tariff on Chinese imports and an additional 25% tariff on goods from Mexico and Canada.
  • These measures could raise U.S. tariffs to their highest levels since 1934 and result in an $800 billion annual increase in tariffs across markets, according to PwC estimates​​. (Barron’s Jan. 3, Construction Dive)
  • Steel Supply Chain Disruption: President Biden’s decision to block Nippon Steel’s acquisition of U.S. Steel has raised concerns about the future of one of America’s largest steelmakers.
  • The acquisition would bolster U.S. Steel’s production capacity and supply chain stability with investments such as $2.7 billion in capital for aging U.S. steel plants, a shared $500 million annual research & development budget, and the transfer of cutting-edge blast furnace technology to U.S. Steel.
  • With construction being the primary steel-consuming sector, accounting for over 50% of steel consumption, U.S. Steel’s uncertain trajectory could pose challenges for steel-dependent CRE projects. (The Washington Post, Jan. 3 | The Wall Street Journal, Jan. 3)​​

Office Markets & Return to Work

  • The U.S. office market faces a stark divide: while overall vacancy rates remain high due to aging buildings and remote work policies, demand for top-tier office space with modern amenities is surging in major cities. (Axios, Jan. 10 | WSJ, Jan. 7)
  • Tenants occupied 22% more premium office space in late 2023 compared to pre-pandemic levels, according to CBRE. (WSJ, Jan. 7)
  • Many outdated buildings have the potential for conversion to residential use, while landlords of premium properties have regained leverage, scaling back tenant concessions for the first time in four years. (WSJ, Jan. 7)
  • JPMorgan Chase may soon require all employees to return to the office. This move follows a growing trend among major corporations, including Amazon, AT&T, and Walmart, that are ending remote work and returning to pre-pandemic office norms. (Axios, Jan. 1 | Forbes, Jan. 9)
  • RER Board Member Scott Rechler (Chairman & CEO, RXR) highlighted stronger office markets, despite vacancies, and increased transactions and property conversions for New York City in 2025 this week on CNBC’s Squawk Box. (CNBC Squawk, Jan. 8)

As rising costs and shifting policies reshape the CRE landscape, RER is committed to working with policymakers to stabilize material costs, innovate solutions to labor shortages, and adjust trade policies to avoid disproportionate impacts on the CRE sector.

Trump Tariffs Could Impact Housing Affordability 

Posted on by Abigail Grenadier

On Monday, President-elect Donald Trump pledged to impose a 25 percent tariff on all goods from Mexico and Canada, and an additional 10 percent tariff on imports from China. These measures could have significant repercussions for the U.S. economy, including housing affordability. (WSJ, Nov. 25 | Reuters, Nov. 26)

Response to Illegal Drugs, Immigration

  • Trump’s social media posts stated that the threatened tariffs are necessary to stop illegal immigration and fentanyl trafficking. He couched the levies on imports as temporary, staying in effect “until drugs and migrants stopped coming over the border.” (New York Times, Nov. 26)
  • The U.S. imports the most goods from Mexico, China, and Canada, in that order.  (U.S. Census Bureau, Sept. 2024).
  • Trump said he plans to impose the new tariffs on his first day in office. (AP, Nov. 26). Mexico, the U.S.’s largest export partner after Canada, vowed to retaliate with its own tariffs and spark a possible trade war. (Washington Post, Nov. 26)

Potential Impacts on Housing, Construction

  • “Overly broad and poorly designed tariffs could unintentionally increase housing costs for millions of renters and home buyers,” said Jeffrey D. DeBoer, President and CEO of The Real Estate Roundtable. “Building safe and desirable housing cost-effectively is tied closely to the price of imported materials like steel, cement, concrete, lumber, glass, and more. Tariffs that increase construction costs would slow bringing new supplies to the market and increase prices to purchase and rent homes.”
  • “We need to boost the nation’s housing supply — through new construction, converting obsolete buildings, strengthening the low-income housing tax incentive, reforming local zoning laws, and other bipartisan strategies,” DeBoer continued. “We look forward to working with the Trump Administration on policies to spur economic growth, create jobs, and in this case, improve housing affordability and availability.”
  • The proposed tariffs would be additional to Biden-era tariffs, which themselves derive from import taxes dating back to the first Trump Administration.
  • For example, in May, President Biden increased the tariff on steel products from China to 25 percent— while also increasing tariffs to varying degrees on semiconductors, solar panels, batteries and other specific Chinese imports. (White House fact sheet, May 14). It appears that President-elect Trump will seek an additional 10 percent on top of these.
  • Similarly, in August, President Biden raised tariffs on imports of Canadian softwood lumber to 14.54 percent, according to the National Association of Home Builders (NAHB).  It appears that President-elect Trump plans to raise this import tax further to 25 percent.
  • Lumber tariffs have a detrimental impact on housing affordability, according to NAHB. “In effect, the lumber tariffs act as a tax on American businesses, home buyers, and consumers.”

Potential Impacts on the Broader Economy       

  • Investor Uncertainty: Uncertainty surrounding trade policies risks dampening investor confidence, which could weigh on real estate property values and slow transaction activity. (Bisnow, Nov. 24)
  • Energy costs: A 25 percent tariff on all imports from Canada would drive up energy costs. Canada is the top external supplier of crude oil to the U.S., with oil, gas, and other energy products making up its largest exports. (Bloomberg, Nov. 26)

Trump did not specify how he plans to impose the tariffs, although many have expected him to rely heavily on the International Emergency Economic Powers Act. That law gives the president broad authority to regulate U.S. commerce after declaring a national emergency. (PoliticoPro, Nov. 24)

View from the CEO: Priorities for the CRE Industry in 2025

Posted on by Abigail Grenadier

With control over the White House and both chambers of Congress decided, attention has turned to how President-elect Donald Trump’s second term will affect the commercial real estate industry.

Looking Ahead

  • As Roundtable President & CEO Jeff DeBoer noted to BisNow last week, the new administration represents a chance to strengthen policymakers’ understanding of the critical role CRE plays in the economy. (BisNow, Nov. 12)
  • “Anytime that there’s a turning of the page, there’s an opportunity to emphasize new issues, or to bring priority to older issues that maybe have been pushed out by previous leaders,” DeBoer told BisNow. DeBoer also highlighted key policy priorities for commercial real estate to move forward in the coming administration, including housing, tax, capital markets, and energy.

Housing Policy

  • Interagency task force: The Roundtable is calling for a federal task force focused on expanding the housing supply, particularly affordable housing. This task force would coordinate efforts across agencies to streamline building processes and reduce regulatory barriers, incentivizing new development across the U.S.
  • Property conversions: The administration should support federal incentives for (such as low interest loans) converting obsolete office buildings into residential housing. Modeled after tax credits for historic preservation, bipartisan legislation like the Revitalizing Downtowns and Main Streets Act could help relieve the national housing shortage. (Roundtable Weekly, July 12)
  • Tariff concerns: Proposed tariffs on materials like lumber, steel, concrete, glass and appliances could impact housing supply: “By putting tariffs on housing materials, you will be indirectly increasing costs for buyers and renters and making it more difficult to solve this housing crisis,” said DeBoer.

Tax Policy

  • With key provisions of the Tax Cuts and Jobs Act of 2017 (TCJA) expiring soon, tax legislation will likely be central to President-elect Trump’s first 100 days.
  • Capital gains: Long-standing elements of the tax code, including the reduced rate for capital gains, the ability to reinvest through like-kind exchanges, and step-up in basis of assets at death, are critical for real estate businesses and encourage productive investment and economic growth. RER will continue to advocate that these provisions be maintained.
  • Section 199A: The qualified business income deduction for pass-through businesses, known as Section 199A, ensures that small businesses can compete on a level playing field with public corporations. RER supports extending the deduction, which is currently set to expire.
  • Foreign investment: Restrictions on foreign investment discourage capital formation and could hinder growth in real estate at a time when increasing the supply and availability of capital is critical to the industry’s recovery. Policymakers should avoid imposing additional restrictions or tax burdens on foreign investors, and consider repealing or reforming the Foreign Investment in Real Property Tax Act (FIRPTA).

Capital Markets

  • Strengthening capital flows in real estate is a top priority, as lending and credit availability have remained relatively weak since the pandemic and are only recently starting to see improvement.
  • Interest rates: Policymakers should carefully consider the inflationary effects of fiscal policies to maintain a favorable interest rate environment. Avoiding increased capital requirements, such as Basel III Endgame proposal, is also necessary to prevent hindering growth.

Energy Policy

  • With the rise of data centers, AI and other energy-intensive sectors, addressing energy capacity and permitting is a critical bipartisan need and “very important” to RER’s agenda, as DeBoer noted.

RER is committed to working proactively and productively with President-elect Trump and the 119th Congress to support the needs of the economy and commercial real estate industry.