Experts say hiking prices by 25% would undeniably make residential construction more expensive. They say that could cause some developers — already saddled with an ongoing spike in the cost of building materials, higher rates for construction loans and a labor shortage — to halt certain projects while pushing others toward more profitable ones.
“It may be that certain low-end or lower-cost products are no longer viable — there’s no profit to be made on them at these costs,” said Morris Cohen, professor emeritus of manufacturing and logistics at the Wharton School of the University of Pennsylvania.
That means affordable housing could be the “most susceptible to an impact,” added Cohen.
Regardless of the price point, however, rental rates and home prices in Philadelphia are poised to become more expensive as a result of the tariffs. That’s because developers would likely pass along at least some of the added cost of construction to residents — so they can repay any loans and still turn a profit.
Even big development companies would struggle to absorb the additional expense, experts say.
“You’re going to have to increase the rent or government’s going to need to step in and lower property taxes or insurance or something else,” said Ken Weinstein, president of Philly Office Retail.
Large, ground-up construction projects, including apartment towers, would become particularly expensive, in part because they require more building materials to complete than a single home renovation project that blends new and old.
Banks might also require these developers to shell out more money in reserves — dollars designed to ensure a project gets completed — in order to secure a construction loan. Gary Jonas, who leads the HOW Group, said the proposed tariffs could make lenders more risk-averse because they tend to add uncertainty to the market, leading to higher reserves.
“Generally, that number is 8 to 10% that the market has considered reasonable. Now somebody in the market might say, ‘We want that to be more like 20%.’ And that’s a big difference to the economics of the deal. And that will take a lot of things that would have worked and make them not work,” Jonas said.
That uncertainty could also make it more challenging to attract investors for a real estate development, another repercussion that could stall or halt certain projects.
