Michigan’s homebuilders fear tariffs will complicate matters for an industry already struggling to build affordable housing after the pandemic drove up materials costs and interest rates.

President Donald Trump on Feb. 1 announced across-the-board 25% tariffs on Canadian and Mexican goods coming into the U.S., effective Tuesday. After reaching a deal Monday for both countries to supply troops to reinforce the U.S. border, Trump paused the tariffs on Mexican and Canadian goods for a month.

Many of the materials used to construct homes already have steep tariffs — a tax paid by an importer on items from specific countries, typically passed down to the consumer. Those items would only get more expensive with higher tariffs, making the cost of housing even higher.

“We’re going to see some cost increases if this is enforced long term,” said Dave Allen, president at modular home builder InnovaLab in Cannon Township, about 10 miles northeast of Grand Rapids, referring to the tariffs. 

Allen said he expects his firm will weather the storm, as most of its customers are nonprofits and government entities with access to subsidies. But he worries for the sector as a whole, which already saw exponential increases in lumber prices driven by supply shortages and increased demand during the pandemic.

“(There’s) anxiety of where it’s going to go in the industry, because I know what it was like during the pandemic,” he said. “It was historic, what we had to deal with, and I fear something like that happening again.”

The National Association of Homebuilders estimates $13 billion, or 7%, of goods used in the construction of new multifamily and single-family housing originate in a foreign country, much of it from Canada.

Of the $8.5 billion worth of sawmill and wood products imported in 2023, nearly 70% of it came from Canada. And about 71% of the $456 million in lime and gypsum products imported to the U.S. in 2023 came from Mexico. Gypsum is a common ingredient in drywall, and lime is used in concrete.

The NAHB noted that Canadian softwood lumber is already subject to a 14.5% tariff, and the proposed 25% tariff would raise that to nearly 40%.

The NAHB has recommended that homebuilding materials be exempted from tariffs.

John Bitely, CEO of Sable Homes in Algoma Township, expects to see initial supply shortages and cost increases as some builders “panic” about tariffs and stockpile goods and materials. But he predicts after six months or so, builders and their suppliers would adjust to the new reality.

“The market’s got to have time to react and settle into what the tariffs mean, so in the short (term), we’ll see as high or higher” cost increases than the 25% tariff, he said. “In the long term, it shouldn’t be that much.”

Still, Bitely worries this will be just one more challenge on top of land costs and red tape like zoning restrictions and state building code regulations.

“It all affects housing … and unfortunately business 101 says when (costs) go up, we have to raise the prices,” he said.

Southwood LLC is a small home building firm based in Grandville that does about 10 new builds a year. Owner Dan Burrill said he is taking a wait-and-see approach to how potential tariffs would affect his business — and whether it’s “a little hiccup” or something more major.

Like Bitely, Burrill was more concerned with other pressures on homebuilders, like interest rates.

“I’m far more concerned with that than I am with tariffs,” said Burrill, a Republican who serves as vice-chair of the Kent County Board of Commissioners. “Rates right now are impacting my business more than I think tariffs could.”

Whatever effect tariffs might ultimately have, Burrill said he plans to honor bids for projects already underway.

“Even when prices went up in 2020, I ate some of those dollars,” he said. “I don’t plan on stopping. … I might have one job (that’s) a little better with numbers and one a little worse with numbers, and we’ll go from there.”

Allen Edwin Homes has a similar message to customers. Brian Farkas, director of workforce housing with the large Portage-based home builder, said the firm will honor locked-in prices.

“We are monitoring the tariffs and what potential impact it could have on inputs to our homes. For our current homebuyers, there is no impact on their price, as their price is locked in at the time they purchase,” Farkas said. “A benefit our homebuyers have is that any changes to our costs do not impact the price they pay from purchase to their closing.”

Given Michigan’s dependence on the auto industry, an even bigger issue for homebuilders may be the ripple effects of tariffs on that sector, said Bob Filka, CEO of the Homebuilders Association of Michigan (HBAM) trade group.

A possible spike in unemployment in the state’s auto-heavy economy would lead to a reduction in demand for new homes, he said.

“You can swap out some (materials), but you can’t swap out somebody not having a job,” Filka said.

Greg George, president of Associated Builders and Contractors Western Michigan, said he has “more questions than answers” about how the tariffs would affect the building industry. But his gut instinct is that the Trump administration is primarily using tariffs as a bargaining chip to achieve its policy agenda.

“The U.S. is the largest economy in the world, and it feels like the tariffs are a negotiating tool for (countries) to come to the table for some of these priorities for the administration,” he said. “It’s hard to get out in front and (say), ‘Here’s what your business should pivot to go do,’ because it might change in 24 hours.”

Still, he said ABC Western Michigan is aware that most of its member businesses already started assessing their supply chains for vulnerability to tariffs from the moment Trump was elected to a second term.

“They’re definitely reaching out to suppliers, saying, ‘Where does this come from? Would this be impacted by tariffs? What can we anticipate?’” he said. “They’re doing their own research based on what jobs they have coming up and what they have in the pipeline.”

— Crain’s Detroit Business reporter Nick Manes contributed to this story.