Real estate

How Trump’s executive orders affect homebuilders

Trump’s housing decision doesn’t mean much

Homebuilders are happy that Trump recognizes that low supply drives up home prices, but the recipe for addressing this in his executive order is unclear.

Most of the text of the order consists of his well-known shots at the Biden administration, describing his policies as “oppressive.” To the extent that anything can be achieved, Trump wants to relax regulations on housing construction.

However, housing regulations that prevent construction are zoning requirements administered at the local level, meaning they fall outside the purview of the presidency. At the federal level, policy options for changing local zoning laws are limited to encouraging change.

This is done by placing conditions on federal transportation funding and Community Development Block Grants to include changes to local zoning ordinances. However, some places are happy to forego that funding to keep zoning laws the same.

“He’s directing the heads of executive departments and agencies at the federal level to look into this, but I’m not sure what impact they could have, other than leaning on local governments and trying to encourage them to streamline regulations and make it easier to build housing,” said Chen Zhao, head of economic research at Redfin, said.

Immigration orders do not directly impact builders

The bulk of Trump’s executive order on immigration focuses on the southern border, with changes to asylum policy and freeing up federal funds for border wall construction. While this likely won’t have an immediate direct impact on builders, it’s a sign that Trump is serious about cracking down on immigration.

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If Trump makes good on his promise of mass deportations of immigrants already in the United States, it could wipe out the amount of construction labor available to builders. According to NAHB, 32.5% of construction workers are immigrants.

The number is higher depending on the employee’s specialty. Immigrants make up more than half of the workforce among plasterers (61%), drywall and ceiling installers (61%), roofers (52%) and painters (51%).

“There is a supply-side challenge when it comes to recruiting enough workers into the construction sector,” Sturtevant said. “I think in the longer term, this environment of reluctance to open immigration to people who want to come to our country and serve in the construction industry has the potential to have longer-term impacts on the economy and the housing market.”

The extent to which raids on immigrant communities would impact homebuilders’ bottom lines — if at all — likely depends on where those raids occur. The administration planned an attack on Chicagobut it leaked before Trump took office, and it is now in limbo.

In the past, Trump has targeted “sanctuary cities” for these raids, meaning cities like New York, San Diego, Denver and Los Angeles. Urban cities like Chicago and New York have significantly less residential construction than the South and Southwest, so if raids are limited to those types of cities, builders may not feel the pain of labor shortages as much.

However, it’s worth noting that the Los Angeles metropolitan area is still seeing a lot of residential construction, and the wildfires that have ravaged parts of LA will increase housing demand in the near term. LA housing construction is already facing numerous headwinds from the fires that could make housing more expensive.

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During the campaign, the Trump camp argued that mass deportations would free up housing and put downward pressure on home prices and rents, but economists say there is little evidence to support that claim.

Immigrants also make up a large portion of remodeling workers, so companies offering these services may also be affected. And while builders may get a break in the short term, a crackdown at the border could also limit future labor supply.

Tariffs for Canada, Mexico and China threaten to become significant

Trump’s continued threat of tariffs is difficult to predict because the numbers have changed frequently since the campaign, with Canada, Mexico and China the most common targets.

Economists have been consistent in their view that these rates will have a negative impact on home prices. In 2018, an NAHB study estimated that Trump’s first-term tariffs on Canadian lumber added $9,000 to the cost of building a single-family home.

“I think it’s pretty well understood that increasing the cost of materials that homebuilders use to build homes will ultimately make it harder to build homes and make it more expensive for people to be able to buy those homes,” Sturtevant says . .

But for homebuilders who oppose these tariffs, Trump’s first day is positive news. In the hours since taking office, he has proposed a 25% tariff for both Canada and Mexico, but with an effective date of February 1. That could be interpreted as a sign that the 25% rate is just a negotiating tactic.

While he campaigned for tough tariffs on Day 1 on China, he abandoned that idea on Inauguration Day and instead called for a “study” of the dynamics surrounding trade with China.

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Unlike immigration, tariffs would have an immediate and direct impact on the cost of building materials. According to NC State’s College of Natural Resources, roughly 30% of the softwood lumber used in the U.S. construction industry comes from Canada, and our neighbor to the north supplies a significant amount of steel.

China is a leading supplier of the electronics used in home appliances, and the consequences of disrupting that supply line were laid bare during the pandemic.

In the long term, tariffs could boost domestic consumption of lumber, steel and electronics, but the extent to which that is true – especially in electronics – is unclear. Homebuilders also can’t reroute their supply lines all at once, so it’s likely that rates will cause pain at least in the short term.

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