There has been a lot of discussion over the past few days about tariffs and the trade relationship between Canada and the United States. The events of Friday where Canada withdrew from the negotiations put the impasse in stark terms. Most of that discussion has focused on manufacturing, autos, steel, aluminum, and politics.
The trade war is clearly escalating. Tariffs are just the start. What happens if the nations take the even more drastic step of withholding exports to each other? Major parts of the US are dependent on Canada for critical resources. We don’t know where this will end.
But underneath all of that is a much more practical question for real estate investors.
What happens when a trade dispute starts changing the cost of building?
Canada is an important supplier of construction materials into the United States. Lumber is probably the most obvious example, but it goes well beyond lumber. Steel, aluminum, cement, plywood, and a number of manufactured products cross the border every day. The trade dispute also puts the agreement with Mexico in uncertain territory.
Higher construction costs are obviously not helpful if you're trying to build something today.
But they can have a very different effect if you already own the finished product.
If a new apartment building becomes more expensive to construct, some projects that were marginal simply don't get built.
If fewer projects start this year, there may be fewer units delivered two or three years from now.
That can reduce future competition for existing properties.
So the same tariff can be negative for one real estate investor and potentially positive for another.
The developer is dealing with higher replacement cost.
The existing owner may eventually benefit from that same higher replacement cost.
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