How Trump’s policy proposals could affect housing prices

President-elect Donald Trump has proposed sweeping changes to immigration policy, taxes and tariffs.

He wants to extend temporary tax cuts that were implemented as part of 2017’s Tax Cuts and Jobs Act and eliminate taxes on benefits like Social Security. He has even suggested replacing the federal income tax with revenue from tariffs, even though experts say tariffs wouldn’t generate enough to pay for any of the major federal spending categories, like Medicare or defense. 

He’s promised to impose tariffs of up to 20% on all imported goods, 60% or higher tariffs on Chinese goods and up to 100% levies on goods from Mexico if that bordering nation doesn’t end unsanctioned immigration. 

Trump also says he wants to implement a mass deportation program that would target millions of unauthorized immigrants. 

It’s important to add the caveat that Trump has a history of making promises that don’t pan out, like his plan to build a giant wall between the U.S. and Mexico that would be paid for by Mexico, Marketplace’s Matt Levin has pointed out. 

Some of his plans could restrain U.S. economic growth, experts have said, and push up the costs of goods and services, including construction. Here’s a look at what his policies could mean for housing. 

Immigration

Both documented and undocumented workers perform a “substantial portion” of the labor in the construction industry, said Brett House, an economics professor at Columbia Business School. 

Deporting immigrants would cut into the industry’s workforce and, House said, likely increase the cost of home construction and renovation. Others amplify that concern.

Jim Tobin, president and CEO of the National Association of Home Builders, said the group is keeping an eye on what Trump’s plans will mean for the availability of workers. 

“We face a persistent deficit of skilled labor in our industry,” Tobin said. “About a quarter to a third of our labor comes in from overseas.” 

Trump and Republican lawmakers say immigrants are responsible for higher housing costs. But when deportations do ramp up, the demand drop is merely temporary, according to professors at the University of Utah, Amherst College and the University of Wisconsin-Madison. Decreasing demand doesn’t compensate for the deportation-driven contraction in building. 

Adam Guren, an economics professor at Boston University, dismisses the idea that an immigration crackdown would ease the country’s affordability crisis. “The only way out of that is to build housing,” Guren said. 

Tariffs

If tariffs proliferate, the cost of building materials could rise, Tobin said. That’s because tariffs are a tax that U.S. importers pay to the U.S. government. 

“Sometimes builders will absorb that, oftentimes it ends up in the final cost of the house,” Tobin said. 

On the other hand, tariffs could spur production of U.S. materials used in home construction, Tobin said. “That could keep prices low, and we would buy more American products,” he said. 

Homebuilders get a third of their lumber from Canada, and that lumber already has a nearly 15% tariff, Tobin said. 

“If homebuilding picks up next year, which we fully expect, it is my sincere hope that those tariffs actually provide American businesses not just with protection but reason to ramp up the production of lumber,” Tobin said.

Oregon and Washington are currently the top lumber-producing states.

Even if the cost of materials goes up, there are more important factors that determine a home’s price. 

“In Southern California and other high-priced areas, it’s not the cost of materials that makes home prices high. In Southern California, the land is by far the biggest component of a house price,” said Edward Coulson, an economics professor at the University of California, Irvine, and director of the school’s Center for Real Estate.

Taxes  

Trump’s tax cut policies could boost housing demand, which could likewise boost prices, House said.

And although tariffs themselves might not influence home prices in a big way, those import levies could influence Federal Reserve interest rate policy. That’s because, House said, the combined effect of higher tariffs and lower taxes could stoke inflation, preventing the central bank from cutting rates. 

If the Fed is reluctant to cut rates, the cost of borrowing won’t go down, which in turn could keep building costs high.

“One of the biggest determinants of the cost of housing and new home construction is the cost of financing that construction,” House said.

For prospective homebuyers, it could feel like there’s no shelter in a market that’s just as tough next year as it’s been in the last few years.