Tariff Trouble
Housing Costs Likely To Rise Due To Uncertain Tariff Policy
The Jacobs family has been running F&F Supply for five generations. They provide equipment to thousands of multifamily buildings in New York City, selling everything from cleaning supplies to garbage cans to the DenovaDetect battery-powered natural gas detector that is now required to be placed in every apartment that has a gas stove.
“Uncertainty is the key word. We feel like we are on a yo-yo,” said Gary Jacobs, the owner of F&F. “With the tariffs, we are uncertain if we are buying from China or not buying from China. The current 90-day moratorium doesn’t help because we don’t know if shipping containers will get here before or after the moratorium is up.”
Fortunately, F&F hasn’t been forced to raise their prices too much, yet. They have a large warehouse and have stockpiled supplies for the past year. When they order goods to re-stock, they blend the increased prices into the current supply, instead of simply increasing prices to match the new supply costs.
Like many generational business owners who have built relationships with repeat customers over decades, they are doing whatever they can to keep the prices low. But sometimes it’s not possible. Goods that are on back order, like the natural gas detectors, come with a rider saying prices are subject to tariff fluctuations.
“All back order items have tariff provisions. And the building owners have been understanding of this. Many are also ordering ahead, because they know prices are just going to go up,” said Jacobs.
Items that could become particularly pricey are plumbing materials and hard rubber trash bins, which are generally produced in China with high quality and low-cost. Sourcing these items to domestic suppliers or even other countries that have less of a tariff burden would still lead to cost spikes for consumers.
Recent city mandates on trash containerization have increased the demand for heavy duty rubber trash bins. The cost of stocking, and restocking bins that are approved by the Department of Sanitation will likely increase significantly unless the tariff policies shift.
Economists warn that the impact on costs for materials used by housing providers and developers from tariffs, or even the threat of tariffs, will lead to higher rents for most people in New York City.
“By inflating building costs, these tariffs could deter builders from initiating new projects and compel developers to pause or scrap existing plans,” Realtor.com® economist Jiayi Xu wrote in their April New York City Rental Report.
The report suggests that new developments slated for Manhattan and the Bronx will be hardest hit by tariffs. It could derail projects that are in the pipeline and ultimately prevent New York City from reaching the modest housing targets.
The tariffs could also hurt the state’s ambitious climate goals. New York Focus reported that the New York City Housing Authority (NYCHA) has been relying on imported heat pumps from China as it moves to de-carbonize its buildings. The innovative appliances plug into the wall like a normal air conditioner and don’t require outdoor components to heat and cool an apartment. The units have been applauded by residents and NYCHA was planning to scale up, but now they may not be able to move ahead due to cost uncertainties.
Concerns over tariff policy is also having a chilling effect on the larger economy, which in turn impacts housing policy in New York. Consumer confidence has dropped to pandemic-era levels. That has deterred many potential homebuyers from pulling the trigger, creating a chain reaction in the housing market. Homeowners including co-op and condo owners can’t find buyers for their homes if they are looking to sell. The potential buyers are still renting, which slows the turnover of apartments, while demand for rental units remains high, ultimately resulting in higher rents. The result is a locked-in effect. People who want to move, either to downsize, or grow a family, or simply relocate to a new location, have limited options.
Unfortunately, things don’t look like they are going to get better. Federal Reserve Chair Jerome Powell has warned that "we may be entering a period of more frequent, and potentially more persistent, supply shocks”, which means interest rates may remain high.
High interest rates have been a major deterrent to housing developers seeking to finance projects. They also have made it very difficult for older apartment buildings to refinance or secure capital for major repairs. This has led to deferred maintenance and building deterioration.
Even if the tariff policy is clarified in the next few months, the damage is already done. The National Association of Home Builders estimates that average home prices are still going to go up by more than $9,000 due to the tariff policy changes currently in place. The exemptions for certain materials necessary for home building, like lumber from Canada, have helped reduce some of the additional costs. But it has not been enough to stop the steady decline in housing permits across the country. Housing experts estimate that they are down 12% from this same time last year.
NAHB Chairman Buddy Hughes told Newsweek that “uncertainty on the tariff front and rising construction costs are exacerbating housing affordability challenges.” Economists generally agree that housing prices will keep rising due to the added costs from tariffs.
Still, there is some optimism. Apartment building starts increased significantly in April, compared to last year. This suggests that projects in the works are still moving forward, at least for now. Starting the development of a multifamily building does not guarantee its completion. If costs rise before or during construction due to tariffs, financing could become harder to secure, or the developer could run out of funding altogether.
The “hope for the best, prepare for the worst” mentality seems to be how many people in New York City are approaching the tariff uncertainty. Building owners aren’t engaging in panic buying of supplies, yet. Developers aren’t axing projects, yet.
For Gary Jacobs and his family-run business, any certainty would be welcome.
“I have been bounced around so much it’s hard to keep track of what’s truth or fiction. It’s a mess.”