How Trade Policies Can Affect the Price of New-Construction Homes

Wooden shelve demarcated into different sections with different labeled sizes of planks arranged in different sections.

Trade policies matter when it comes to price of materials that are used to build your home, like lumber.

With U.S. President Donald Trump taking a keen interest in U.S. trade policy, home shoppers might well wonder how international trade policies might affect the price of new-construction homes.

Trade is far from the biggest factor that determines the price or quality of a newly built home, but it’s not negligible.

In fact, trade can affect the price, quality and selection of certain building materials, residential appliances and home decor products that are often imported from other countries. Examples include lumber, drywall, refrigerators, clothes washers, furniture and window drapes.

Buyers “should certainly be aware” of how trade might impact their home purchase, says Gary Hufbauer, senior fellow and self-described free trader at the Peterson Institute for International Economics, a Washington, D.C.-based nonpartisan nonprofit that studies international economic policy.

“A house is a huge-ticket item,” Hufbauer says. “The impact of trade on it is dwarfed by land costs and the labor component of construction, but there are components that are affected by trade.”

Lumber Disputes

Top of the list of affected items is softwood lumber, which is both imported from Canada and produced in parts of the United States. It’s used to make two-by-fours and construct the framing inside the walls of most newly built homes.

The United States and Canada have been at loggerheads over softwood lumber trade for more than a century and most intensely since the 1980s, says Hufbauer.

The U.S. Lumber Coalition, which represents U.S. lumber producers, has accused Canadian companies of “dumping subsidized merchandise on the U.S. market,” resulting in the loss of sales, revenues and jobs at U.S. lumber mills.

Imported lumber is cheaper for U.S. homebuilders and buyers, though it’s difficult to pinpoint the exact amount of savings in part because of currency exchange rate fluctuations.

Alexandre Moreau, a public policy analyst at The Montreal Economic Institute, wrote in a September 2016 paper that U.S. softwood lumber consumers are affected a 2006 agreement between the United States and Canada. The institute is a nonpartisan, not-for-profit research organization in Quebec.

“The lumber targeted by (the agreement) is used primarily for residential construction on the American market,” Moreau stated.

Lumber has become more costly in 2017, according to Random Lengths, a data firm that tracks the wood products industry. Homebuilders can pass along the higher cost to buyers or absorb it themselves, cutting into their profit.

Looking Forward

Whether the costs of softwood lumber and other materials used to build and furnish new homes will continue to rise is difficult to predict. One reason is that the Trump Administration hasn’t announced a specific trade policy agenda, says Robert E. Scott, director of trade and manufacturing policy research at the Economic Policy Institute, a Washington-based nonprofit that researches how economic trends affect working people.

“Trump has said he is going to fix our trade problems with big trade deals, but there has been no movement in that direction other than to say they’re going to start talking about reform soon,” Scott says. “It’s a very cloudy agenda at this moment.”

Hufbauer says tariffs, which are a form of tax on imported goods, or so-called trade wars with Mexico or China could jack up prices of imported home appliances and furnishings.

“Right now, the tariffs are pretty low and trade is pretty free, but if we go into a huge protectionist binge, all those prices are going to go up,” he says.

Other Options

One solution for builders — and their buyers — could be alternate suppliers, either domestic or foreign. In September 2016, U.S. builders held discussions with lumber companies, trade organizations and government officials in Chile, according to a statement released by the National Association of Home Builders (NAHB), a Washington-based trade group.

In the statement, NAHB CEO Jerry Howard said that the group supports opening up competition in the U.S. lumber market because it benefits U.S. homebuilders and buyers.

Not everyone agrees.

Tom Page is vice president of iStar, a community developer in Richmond, Va., and general manager of Magnolia Green, a residential new-home community in Moseley, Va. He says there’s a need for some of the import tariffs proposed during election campaigns.

Page also points out that homebuilding costs can rise for a multitude of reasons, including not only trade policies, but also the strong U.S. economy and buyer demand for newly built homes.

“The bottom line is that some of the materials we use today come from overseas and if those costs go up, then it’s going to affect everyone who is in the market to buy a home,” Page says. “Prices have already started to go up on various materials and a part of that is just the nature of the business.”
Marcie Geffner is an award-winning freelance reporter, book editor and blogger whose work has been published by a long list of financial, mortgage and banking websites, trade magazines and newspapers. You can find her on Google+.

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