Tariff fears are raising construction costs by up to 20%, says Related Group CEO
Building contractors are already hiking prices as much as 20% to offset potential tariffs, a move that could also raise prices of new condos and homes, according to the CEO of developer Related Group.
President Donald Trump has imposed 25% tariffs on certain goods from Canada and Mexico, including steel and aluminum, and is expected to follow through on broader tariffs starting on April 2. Even before those wider levies take effect, uncertainty over tariffs and inflation is causing many contractors to hike real estate project costs.
Related Group CEO Jon Paul Pérez said contractors bidding on seven projects that Related has in the works are raising prices.
'We're seeing [subcontractors] throw an additional cushion into their numbers anticipating tariffs,' Pérez told CNBC during a live Inside Wealth conversation. 'It could be as much as 20%, depending on what material they're getting from another country.'
Pérez said the price hikes are driven by the anticipation of higher costs, rather than current levels, and noted it's unclear how the higher costs will be divided between contractor and developer.
'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 said.
As a result, tariff fears could add further upward pricing pressure on a housing market that's already crippled by high prices and elevated mortgage rates. According to a survey from the National Association of Home Builders, rising prices for construction materials could add $9,200 to the cost of a typical home.
Related Group is one of the largest and most prominent developers in the U.S., spanning affordable housing to luxury condo buildings, mainly in South Florida. The company currently has more than 90 projects in some stage of development, including rentals, affordable housing units, mixed-use developments and luxury condos.
Related's founder and chairman, Jorge Pérez, said that in addition to tariff concerns, the Trump administration's crackdown on immigration could also drive up prices for developments, since the construction industry relies heavily on workers from overseas.
'There will absolutely be a cost effect in our industry, in particular the construction industry,' he said. 'Losing these people will have an inflationary effect.'
For now, Related said the high end of the real estate market remains strong, especially in Florida. The company sold two condo penthouses at its exclusive new development on Fisher Island near South Beach, Miami, for a total of $150 million.
Related is also building a luxury oceanfront condo tower in Bal Harbour, Miami, called Rivage Residences Bal Harbour, that is offering a mega-mansion in the sky — combining two penthouses that could total more than 20,000 square feet and fetch over $150 million.
'The high-end buyer is a very particular buyer,' said Jorge Pérez. '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.'
Chairman Pérez said the 'middle market,' or those buying condos in the $1 million to $3 million range, are taking more of a wait-and-see approach given the uncertainties around tariffs and immigration. Many condo buyers in Miami and South Florida are from Canada and Latin America, and are therefore more sensitive to potential changes in immigration policy.
'South Americans are coming and saying, 'What's going to happen with immigration policies?' or, 'Am I going to lose my visa?'' he said. '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.'
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