Many Moving Parts – March 3, 2025

Much has been written about the potential impact of the Trump administration’s tariffs, which are now beginning to take effect. However, analysis of the impact sometimes presents tariffs as a standalone dynamic factor to be considered in the context of an otherwise static environment. A closer look suggests that tariffs are just one of many moving parts.  

New analysis from Yardi Matrix suggests that multifamily construction hasn’t decelerated quite as rapidly as was thought previously, meaning that hundreds of thousands of units are still on pace for delivery this year and next, although starts have declined. Against this backdrop, industry experts say construction costs are likely to be influenced significantly by the severity of the tariffs on materials such as aluminum, steel and electronics. Yet near-term market headwinds, including constricted capital markets and softened rents, will also play a part. 

Chicago-based Origin Investments, a multifamily real estate fund manager with 28 projects in varying stages of development and construction, says tariffs could result in pricing spikes of up to 7.5% for all construction materials and lead to overall project cost increases of 3% to 4%. Conversely, the firm also notes that higher borrowing costs and slow rent growth in the near term could blunt the price increases resulting from tariffs. 

“The impact of highly anticipated tariffs is hard to understate as a fund manager, yet the effect of capital market challenges coupled with a softened rent environment can’t be overlooked either,” said Kevin Miller, SVP, Origin Investments. “If the existing headwinds aren’t tamed, fewer new projects will be started, making cost increases somewhat irrelevant.” 

Origin notes that long-term rent growth may be far more predictable than interest rates. In its 2025 Rent Growth Forecast, Origin projected year-over-year Class A multifamily rent growth of 2.4% by January 2026. In the report, the five-year compounded annual growth rates for rents in the 15 cities where Origin invests and owns multifamily assets are all greater than 4.0%, with many over 5.0%. 

The National Association of Home Builders has estimated that approximately 46% of U.S. construction materials are sourced from China, Canada and Mexico. Moreover, 35% to 50% of total multifamily project construction costs are tied to finished materials such as lumber, appliances and HVAC equipment. 

“As a developer and investor, Origin and our construction partners across the country closely monitor construction costs, from the big picture down to the price of specific building materials,” Miller said.  

He noted that forward-looking indicators like new permit issuances and housing starts were already declining in 2024 because of market forces unrelated to any formal announcement of tariffs. In fact, they were in decline before the 2024 election season had begun in earnest.

Origin regularly surveys its construction partners and contacts to gauge contractor sentiment on topics ranging from tariffs to material costs to the cost and availability of labor. Most recently, the company has found that: 

• Concerns about tariffs notwithstanding, most respondents expect flat (40.9%) to moderate (45.5%) increases in construction pricing trends for 2025. Taking a more optimistic view, 13.6% anticipate a moderate decrease.   

• The greatest concerns for pricing volatility are in lumber (40.9%), electrical switchgear and components (27.3%) and concrete (18.3%).  

• Respondents believe the biggest challenges facing multifamily construction are financing (68.2%) and labor availability (18.2%). 

• On the labor front, more than a quarter (27%) expect labor costs will increase to 10% from 5%; the same amount expects increases of 1% to 5%. Nearly a third predict no change in labor costs. 

• With construction starts and permits declining, more than 70% forecast significant or moderate improvement in labor availability. 

“The general sentiment is that the impact on development will be short-lived because the level of new construction starts remains depressed due to lagging rent growth and more expensive debt,” Miller said. “This supports the viewpoint that a project that is capitalized in today’s environment has great potential because in spite of everything else, demand is there.”