Construction Costs on the Rise

A central concern for developers and investors this year is the return of steep tariffs on steel and aluminum imports, which now sit at 25%. Since steel can make up nearly 15% of construction costs for some multifamily projects, these tariffs directly squeeze profit margins—especially for value-add or ground-up developments.

While some Sun Belt and Midwest cities have seen a surge in multifamily permits, rising tariffs could discourage new developments nationwide—including in high-demand markets like Seattle. If construction slows, tighter rental supply could push rents higher in the coming years.

Affordable Housing Faces Added Pressure

Tariffs are also reshaping the affordable housing sector. Developers in this space already operate on thin margins. The combination of higher material costs and a constrained labor market—exacerbated by aggressive immigration policies—is making it harder to deliver cost-effective housing solutions.

This is particularly relevant for investors focused on workforce housing or public-private partnerships. Rising costs can delay timelines, increase financing needs, or reduce the return profile of a given deal.

A Shift in Investor Strategy

In light of these pressures, many sponsors are adapting their acquisition strategies. Some are pivoting to core-plus assets that require less renovation, while others are emphasizing cost-controlled value-add plays that minimize exposure to fluctuating material and labor prices.

Risk mitigation strategies include:

• Partnering with domestic suppliers to avoid international tariff volatility
• Building longer timelines and higher contingency reserves into underwriting
• Prioritizing stable, cash-flowing assets over speculative development

These measures are helping operators weather short-term uncertainties while positioning themselves for long-term growth.