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During Trump 1.0, working for a home builder, I learned that wholesalers raise the price of lumber at the first mention of tariffs. Trump 2.0’s schizophrenic tariff policies may seem to have caused no harm yet, however, builders are no doubt already feeling the pinch. The Wall Street Journal reports “Based on initial conversations with builders, NAHB Chief Economist Robert Dietz estimates the tariffs, once fully phased in, will add anywhere from $7,500 to $10,000 to the cost of building the average American family home.”

Roughly 8 percent of materials used to construct a house are imported from other countries. The President made mention of Canadian lumber during one of his daily gatherings in the Oval Office, claiming “We don’t need Canadian lumber. We can cut our own trees down and replant them.” But, as Murray Rothbard explained,

Tariffs injure the consumers within the “protected” area, who are prevented from purchasing from more efficient competitors at a lower price. They also injure the more efficient foreign firms and the consumers of all areas, who are deprived of the advantages of geographic specialization. In a free market, the best resources will tend to be allocated to their most value-productive locations. Blocking interregional trade will force factors to obtain lower remuneration at less efficient and less value-productive tasks.

The WSJ reports that, with mortgage rates in the high 6 percent range and the spike in home prices during the last few years, builders will not be able to pass along higher input costs created by the tariffs. Tariffs are essentially taxes on imported materials and, as Rothbard wrote, cannot be passed on to consumers:

Prices are already at the highest net income levels for each firm. Any increase in cost, therefore, will have to be absorbed by the firm; it cannot be passed forward to the consumers. Put another way: the levy of a sales tax has not changed the stock already available to the consumers; that stock has already been produced.

Buyer traffic is already soft. “The lead into the crucial spring home buying season has been weak, with January sales of new single-family homes down 10.5 percent compared with December, on a seasonally adjusted annual rate,” the WSJ reported.

John Burns Research and Consulting points to another Trump policy which could raise house prices or slow construction. It will come as no surprise that,

Construction sites look ripe for immigration-enforcement raids as home builders rely heavily on unauthorized workers. Half of ceiling-tile installers and 37 percent of roofers are undocumented, according to John Burns estimates. A crackdown that shrinks the pool of workers could push up construction pay, which is already rising faster than wages in the wider economy.

All of this has slowed investment decisions as those with knowledge of Austrian Business Cycle Theory can appreciate. As the WSJ’s Carol Ryan writes, “Builders need to be sure about policies when they make investment decisions, as the timespan between buying land to completing a housing development can be three years or more.”

Although we are told that there is a severe housing shortage, “Home builders are being cautious as they already have a glut of finished inventory they are struggling to sell,” Ryan writes.

These policies will not just distort the “for sale” sale housing market but the rental market as well. “The real story on tariffs and immigration is less supply, which is favorable for rent growth,” Cedrik Lachance, director of research at real estate analytics firm Green Street told Ms. Ryan.

Writing on mises.org, Richard Martin writes,

“Bastiat’s lesson of the seen and unseen reminds us that the true cost of protectionism lies beyond what is immediately visible. By focusing on short-term benefits, countries risk long-term economic stagnation and structural damage.”

For all the political rhetoric about building “affordable housing,” the reality is housing prices will only go up.

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