EP #31 Scott Villani & Dan Hull | How Tariffs Impact Apartments & BTR
Apr 24, 2025
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Scott Villani, Chief Strategy Officer at NRP Group, and Dan Hull, President of NRP's Construction Business, delve into the significant impacts of tariffs on apartment development. They discuss how tariffs affect construction costs and supply chains, while revealing that the total impact might be less severe than anticipated. The duo shares insights about the current lease-up environment and highlights which markets are rebounding fastest. They also reflect on the resilience of the apartment sector amidst economic fluctuations and evolving demand.
Tariffs are expected to increase construction costs only slightly, while rising interest rates present a greater challenge for new developments.
Apartments and single-family rentals demonstrate resilience during economic downturns, countering the belief that tariffs will significantly enhance rental demand.
Developers are diversifying supply chains to mitigate tariff impacts, which may ultimately lessen their effect on overall construction costs.
Deep dives
Impact of Tariffs on Construction Costs
The impact of tariffs on construction costs is expected to be lower than many believe. Developers estimate that the increase in costs due to tariffs may only range from low to mid-single digits, which, although not insignificant, does not spell doom for projects. A more pressing issue affecting the construction industry is the spike in interest rates, which has proven to be a greater deterrent to new developments than tariffs alone. Consequently, while tariffs may pose additional challenges, their effects on the rental market and construction timelines will take years to become evident.
Economic Risks and Rental Demand
The potential for increased recession risk is a significant concern, as economic downturns can negatively affect rental demand and subsequently push rents down. However, apartments and single-family rentals (SFR) tend to have a higher resilience during recessions compared to other commercial real estate sectors. Even in tough economic times, vacancy rates remain relatively low for apartments, although there may be some rent delinquency and increased pressure on rents, especially in lower-tier properties. Ultimately, historical patterns suggest that recessions lead to household consolidation rather than an increase in rental demand, challenging the notion that tariffs will boost the rental market.
Supply Chain Adjustments in Response to Tariffs
Developers have made considerable shifts in their supply chains to mitigate the effects of tariffs, including sourcing materials from countries other than China. Since the initial tariff discussions began, many builders have been proactive in diversifying their suppliers, which has helped cushion the impact of tariffs on construction costs. For instance, a substantial percentage of materials used in construction now comes from alternative countries, reducing reliance on costly imports from China. As the market adjusts, the actual effect of tariffs on overall construction costs may lessen as suppliers absorb some of the tariff-related expenses.
Uncertainty's Effect on Market Dynamics
The ongoing uncertainty surrounding tariffs is leading to a slowdown in rental demand and transactional activity within the real estate market. Investors tend to hesitate during periods of economic unpredictability, which causes a 'freezing effect' on decision-making, reminiscent of previous market downturns. The reluctance to act can jeopardize deal flow and investor confidence as the market warms up again. Although the long-term outlook for the rental housing market remains positive, current uncertainties might pause recovery efforts and slow down leasing activity.
The Importance of Quick Resolutions
Quick resolutions regarding the tariff situation are deemed critical to maintaining economic growth and market stability. Prolonged tariff wars risk exacerbating construction challenges and creating a more severe supply slowdown in the multifamily housing sector. Companies like Blackstone have stressed the necessity for a prompt resolution to foster a more favorable business environment, thus accelerating the recovery of the real estate market. The expectation is that once clarity returns to the tariff situation, confidence will be restored, leading to increased investment and a rebound in rental activity.
Rental housing economist Jay Parsons tackles today's biggest newsmaker: tariffs. What impact are tariffs having on apartment and BTR construction and operations? How much will new starts be impacted? What components are most impacted by tariffs? Jay cuts through the noise and hot air to share five observations and insights on the potential impacts of tariffs on multifamily and build-to-rent housing. Jay also breaks down recent headlines speculating about the impact on rents, and explains why the current narrative is likely wrong. Additionally, Jay welcomes in two executives — Scott Villani and Dan Hull -- from one of the nation's largest apartment builders, NRP Group. Scott and Dan open up NRP's playbook to share where they're seeing impacts from tariffs, and why the total impact on construction costs is likely less than many people think. Scott and Dan also share what they're seeing in the current lease-up environment, and what markets are showing signs of rebounding earliest and supporting the next wave of new construction starts.
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