Quick take: The evolving tariff landscape is reshaping construction budgets. At Origin, we are employing strategic measures like early procurement, direct purchasing and domestically sourced materials to control expenses. For projects in pre-development, Origin is refining its underwriting strategies, balancing cost contingencies with projected rent growth to maintain return profiles and offset the financial impact of material prices.
Since we published our Jan. 31 Market Monitor on the potential impact of tariffs on construction prices, a wave of policy updates and international trade negotiations has reshaped the outlook for construction costs. As we decipher the real impact on materials pricing, Origin is implementing cost-saving strategies for existing projects and analyzing our exposure to potential cost increases on projects in the underwriting process. Many factors influence the costs of property development. But at this point, we believe that these potential increases will not have a significant impact on the bottom line. About 70% of our projects are far enough along in the construction process to avoid being impacted by price increases.
The Current Tariff Landscape
On March 3, the Trump administration imposed a 25% tariff on imports from Mexico and Canada, along with an additional 10% tariff on Chinese goods. Shortly after, tariffs on Canadian steel and aluminum were raised to 50% and then reverted to 25%. Additionally, tariffs on select imports from Canada and Mexico were paused for one month. The stated goal of these tariffs is to incentivize the return of manufacturing jobs to the U.S. While not all jobs are expected to return—especially lower-wage roles that may remain in countries like Mexico—we could see a potential resurgence in higher-skilled manufacturing or increased domestic automation. If successful, this shift could drive a surge in demand for construction labor, as new manufacturing facilities would need to be built. This increased demand could, in turn, impact our business by tightening the labor pool available for multifamily construction. As of our publication date, here’s where tariffs stand:
| Country | Material | Tariff | Effective Date | Status as of March 29 |
|---|---|---|---|---|
| China | Steel, aluminum, appliances | 20% | March 4 | Active |
| Mexico | Gypsum | 25% | March 4 | Effective April 2 |
| Mexico | Most goods | 25% | March 4 | Effective April 2 |
| Canada | Lumber | 25% | April 2 | Effective April 2 |
| Canada | Most goods | 25% | March 4 | Effective April 2 |
| Canada | Steel, aluminum | 25% | March 12 | Active |
Source: ArentFox Schiff LLP
Two executive orders enacted on March 1 aim to expand American timber production and mandate an investigation into whether lumber imports pose a threat to national security. These executive actions strongly signal that a tariff on lumber is likely forthcoming. Lumber futures have increased steadily since the new year, from $550 to about $682 per thousand board feet, exceeding a two-and-a-half-year high of $658.
What impact would a 25% increase in lumber prices have on construction pricing for the development projects we do? If that increase is fully absorbed into materials pricing, we estimate a 1% increase in the total construction budget of garden and build-for-rent projects, and less for podium and wrap-style products. This projection considers that 30% of the lumber consumed in the U.S. is imported from Canada and that framing materials typically account for approximately 13% of total budgets.
Commodity Markets
We anticipate that tariff-related cost increases in steel and aluminum will immediately impact construction pricing. Prices on materials such as drywall, concrete and manufactured components may increase as suppliers capitalize on reduced international competition. In fact, we already have received notices from subcontractors warning us of price increases. However, competition among construction firms vying for fewer development opportunities could provide some relief.
Many elements of the construction material supply chain including transportation costs, on-site energy consumption and products including drywall and paint rely on petroleum-based inputs. Crude oil prices have not been this low since 2021; the White House has expressed a commitment to increasing domestic oil production; and OPEC+ is currently committed to gradually increasing production while prioritizing market stability. All this could add up to an overall reduction in energy costs.
Impact on Multifamily Starts
According to Newmark, rolling four-quarter housing starts reached 1.3 million units in Q4 2024, while permits totaled 1.8 million units—year-over-year declines of 28.8% and 13.5%, respectively. Since their peak in Q3 2022, housing starts have fallen 40.2%, while permitting activity has declined 37.9%. We expect that higher costs and continuing volatility in Treasury yields will further hamper already declining starts through Q3 2025.
Managing Costs on Our Projects
Here’s how Origin is taking steps to mitigate short-term tariff-related pricing pressures.
Projects Under Construction
- Early procurement and storage: Origin collaborates with partners to identify materials vulnerable to price hikes and secures bulk purchases earlier than usual in the project timeline. While some vendors offer storage until materials are needed, others require external storage solutions. In such cases, Origin evaluates the cost of storage against potential price increases, opting for storage when it provides a net cost advantage and mitigates financial risk.
- Domestically sourced finishes: We are pursuing domestically produced versions of items traditionally sourced internationally. That includes flooring, quartz countertops, cabinetry, plumbing fixtures and lighting supplied by China; engineered hardwood, sinks, appliances and some cabinetry from Canada and Mexico; and ceramic tiles and plumbing fixtures from Mexico.
- General contractor costs: When hiring general contractors for development projects, we are increasingly implementing stricter cost and liability limits. This includes caps on price increases and more detailed breakdowns of material costs. Also, expanded shared savings agreements ensure the owner benefits if costs decrease and incentivize the general contractor to deliver under budget.
- Leveraging scale: Working with larger contractors gives us purchasing power. We are seeking out general contractors that can leverage bulk buys across multiple projects, reducing per-unit materials costs.
- Direct purchasing: Where feasible, Origin and its partners eliminate intermediaries and procure materials such as electrical gear, light fixtures and plumbing fixtures directly from the manufacturer.
Underwriting Pipeline Projects
Origin is carefully refining our underwriting approach for projects currently in pre-development, ensuring a balanced strategy between hard cost contingencies and projected rent growth. For example, Origin conducted a scenario analysis on a ground-up garden development in the Southeast to assess the impact of absorbing potential cost increases on returns and to evaluate how to offset the financial burden. The analysis assumes mid-point increases in key construction materials, including increases of 17.5% in lumber, 15% in metals, and 7.5% in drywall, concrete and fiber cement. These adjustments add up to a 2.4% increase in the total project budget. To maintain the same return profile as the current underwriting, rents would need to increase by $41 per unit per month.
The Multilytics®️ rent growth forecast for this market projects a 4.4% year-over-year rent increase by January 2026. If realized, this growth would translate to rents $91 higher than our current underwriting and over $50 more than needed to fully offset the impact of escalated construction costs on returns.
Beyond direct tariff-related scenario analyses, Origin is incorporating labor market stress tests into project underwriting to better anticipate and manage workforce volatility. This approach is particularly critical as tariffs may drive increased demand for new domestic manufacturing construction. Additionally, we are exploring investments in modular construction, prefabrication and automation to reduce reliance on traditional on-site labor.
Despite the challenges posed by the rapidly evolving tariff landscape, material price volatility, and macroeconomic uncertainties, proactive strategies are helping mitigate cost impacts and sustain project feasibility.
