Construction Costs on the Rise

Building contractors are implementing price increases of up to 20% in response to anticipated tariffs, which could significantly affect the pricing of new condominiums and homes. This trend has been highlighted by Jon Paul Pérez, CEO of the Related Group, one of the largest real estate developers in the United States.

Tariffs and Market Uncertainty

President Donald Trump’s administration has enacted a 25% tariff on specific imports from Canada and Mexico, notably affecting steel and aluminum. These tariffs, alongside broader tariffs scheduled to take effect on April 2, have led to rising uncertainty that is already impacting construction costs.

Pérez noted that contractors involved in at least seven ongoing projects have significantly raised their bids. “We’re seeing [subcontractors] throw an additional cushion into their numbers anticipating tariffs,” he explained in a discussion with CNBC. This anticipatory pricing could see increases of up to 20%, depending on the materials sourced from abroad.

Understanding Pricing Dynamics

Pérez elaborated that these hikes are largely precautionary rather than reflective of current costs, complicating cost-sharing negotiations between contractors and developers. “When you go through their numbers in detail and you start negotiating, you quickly find out they’re just sort of padding to protect themselves,” he stated.

This fear of tariff-related price hikes may exert additional upward pressure on a housing market that is already struggling with high costs and increasing mortgage rates. According to the National Association of Home Builders, escalating construction material prices could result in an extra $9,200 for the average new home.

Related Group’s Position

With over 90 projects in development, encompassing a range of housing types from affordable units to luxury condominiums, Related Group plays a vital role in the U.S. real estate landscape. The company’s founder, Jorge Pérez, also pointed out that the administration’s immigration policies could potentially drive up costs in the construction sector, as it relies heavily on a workforce that includes many immigrants.

“There will absolutely be a cost effect in our industry, in particular the construction industry,” Pérez noted. “Losing these people will have an inflationary effect.”

Market Observations in Florida

Despite these challenges, Pérez observed that the high-end real estate market, particularly in Florida, remains robust. For instance, Related Group recently sold two luxury penthouses on Fisher Island, Miami, for a combined total of $150 million. Upcoming projects, like the luxury condo tower Rivage Residences Bal Harbour, aim to attract affluent buyers with unique offerings, such as a combined 20,000 square-foot mega-mansion in the sky.

“The high-end buyer is a very particular buyer,” he remarked. “Those people are buying over $10 million condominiums and typically they’re very, very wealthy. So they’re less affected; we’re not seeing a decline in that market.”

Middle Market Sentiments

On the other hand, the middle market—defined as condos priced between $1 million and $3 million—is exhibiting more caution as potential buyers weigh the implications of tariffs and immigration policy changes. Given that many prospective buyers hail from Canada and Latin America and are particularly sensitive to these developments, some have delayed their purchasing decisions.

“South Americans are coming and saying, ‘What’s going to happen with immigration policies?’ or, ‘Am I going to lose my visa?’,” Pérez explained. “We had a project where we just lost seven or eight Canadian and Mexican buyers that were ready to sign contracts, but when all these things came from tariffs, they didn’t want to buy. But I think that will calm down.”