Uncertainty over new tariffs on imports is causing significant concern for home builders and real estate developers in Southern California, especially in areas affected by the recent wildfires. With the potential for steep tariffs on construction materials and appliances, builders are struggling to plan budgets and make timely purchasing decisions.
The situation has become particularly urgent for contractors who need to buy essential items like windows, doors, plumbing, and lighting fixtures, many of which come from China and could face tariffs as high as 145%. This uncertainty is already leading to price increases for consumers, complicating the rebuilding process in neighborhoods like Pacific Palisades, where homes were destroyed in the January wildfires.
Cory Singer, a general contractor overseeing multiple rebuild projects, expressed frustration over the unpredictability of material costs. He mentioned that suppliers are warning of price hikes, prompting builders to add a contingency of 5% to 10% to their budgets to account for this market volatility. Some clients are even considering storing materials on-site to avoid future price increases.
The wildfires have resulted in the destruction of around 16,000 homes and businesses, setting the stage for a construction boom in Los Angeles. However, builders are also facing challenges with material shortages and rising costs, particularly for lumber and bathtubs. Singer noted that suppliers are urging immediate orders to avoid price hikes, adding to the pressure on rebuilding efforts.
Architects and contractors involved in the rebuilding process are particularly concerned about the impact of tariffs on their projects. Many are unsure which tariffs will remain in place as they embark on one of the largest reconstruction efforts in the area’s history. Bryan Wong, CEO of San Gabriel Valley Habitat for Humanity, voiced his anxiety over the unpredictable tariff landscape, which complicates planning and budgeting for nonprofit projects.
The construction industry had initially shown positive signs this year, with lower mortgage rates and a growing inventory of homes. However, the recent developments have dampened optimism. Anirban Basu, chief economist for Associated Builders and Contractors, highlighted the shift in sentiment, noting that the outlook is not as bright as it was just weeks ago.
Labor shortages are another pressing issue, exacerbated by the Trump administration’s immigration policies. Many construction jobs rely heavily on foreign-born workers, and the fear of deportations has made it difficult to maintain a stable workforce.
While the current tariff impacts are not yet crippling, uncertainty looms over future decisions. Alon Kraft, COO of Dedeaux Properties, explained that businesses are hesitant to make major decisions regarding leasing or expansion due to the unpredictable economic climate. This hesitation could slow down the pace of development in the region.
Last week, President Trump announced a temporary 90-day pause on tariff increases for over 75 countries, excluding China. However, this merely delays the uncertainty, leaving many in the industry anxious about what will happen next.
Overall, the combination of unpredictable tariffs, labor shortages, and rising material costs poses significant challenges for home builders and developers in Southern California as they work to rebuild after the devastating wildfires.