Builders, Contractors Brace For Impact From Trump Tariffs, Deportations

There was still a month to go before Inauguration Day when Lennar’s Jon Jaffe addressed the elephant in the room.

“I also want to comment on the potential impacts of new tariffs or immigration policies, as each [has] the potential of affecting costs and cycle time,” the president of the nation’s second-largest homebuilder said on an earnings call.

Then-President-elect Donald Trump had already floated sweeping tariffs — a known inflation driver — and “the largest deportation program of criminals in the history of America,” which would squeeze construction crews and drive up labor costs, economists expect.

But Jaffe and Lennar CEO Stuart Miller declined to opine on whether those threats might hurt business — even when pressed.

“Are you contemplating cycle time impacts from a crackdown on undocumented workers?” Evercore ISI’s Stephen Kim asked.

“That’s a wildcard,” Miller responded.

“So I’m clear … it sounds like you’re not assuming any cycle time impacts,” Kim said.

“Are there clear answers at this point?” Miller posed. “There are not.”

The same ask-and-punt exchange played out on the Inauguration Day earnings call for D.R. Horton — the nation’s largest homebuilder.

“We have the labor we need and we have the materials we need,” President and CEO Paul Romanowski told an analyst asking whether tariffs would drive up costs. “It has yet to play out to see what happens with this administration.”

But in the week since, the unknown has been brought rapidly into focus.

The Trump administration on Day 1 threatened to slap 25 percent tariffs on Mexico and Canada by Feb. 1 and greased the U.S. Immigration and Customs Enforcement’s ability to expedite the removal of suspected undocumented immigrants.

Large-cap homebuilders may have the wiggle room to defer projective questions. They won’t need to answer on the financial effect of new policies until the second-quarter earnings season this spring, but that doesn’t mean they’re not modeling impact scenarios behind closed doors.

“This is something that everyone in the development and construction community is thinking about,” said Rosie Tilley, head of development at New York-based Charney Companies.

“How do you underwrite uncertainty?” she said. “That’s a really challenging point of risk to reckon with.”

On the ground, builders and contractors are sounding the alarm: Trump’s policies, whether latent or signed, aren’t only bad for business, they’re already affecting it.

Sam Charney’s development firm has been racing to insulate itself from any potential price hikes, amending contracts so the firm will not pay the premium if costs rise.

It’s unclear if contractors are already baking those expectations into their bids, but eventually they will, Brian Turmail of the Association for General Contractors trade group said.

“They’re going to price in expectations for tariffs largely because their suppliers are pricing in expectations,” he said.

If Trump’s tariffs go live this weekend, there will be little lag time before exporters pass the costs on to U.S. buyers.

“The impacts would be felt fairly quickly, with some surfacing in a span of weeks and the majority within a quarter or two,” American Builders and Contractors’ Chief Economist Anirban Basu said.

And in the near-term, contractors that already won bids will have to eat the difference.

“It’s the contractor that we squeeze,” Turmail said.

Specifically, the price of softwood lumber used in framing, roofing and flooring and that of crude oil, which is refined into asphalt to pave driveways, parking lots and roads, will rise, Basu said, as the U.S. imports the bulk of each from Canada.

Diesel prices, and therefore the cost of shipping, would also surge. Tariffs on Mexico, meanwhile, would raise prices on the trucks and tractors contractors rely on. The cost of steel and aluminium may also rise.

Developers can source materials domestically or from countries that Trump does not target with tariffs.

Amid few specifics, Lennar’s Jaffe did highlight the firm’s “major shift starting eight years ago to move away from Chinese and other Asian manufacturers.”

“Today, the majority of what we purchase from our supply chain is from U.S.-based manufacturers,” he said, noting that Lennar is using more domestically grown timber.

But if tariffs boost prices of imported goods, it’s likely stateside suppliers will raise their costs, too.

“That’s typically what supply and demand shows,” Tilley said.

Meanwhile, Trump’s deportation moves are hitting the industry on the ground. As fears of ICE raids became reality, some construction workers stopped coming to work, sources say, a nascent problem for an industry dependent on immigrants.

Thirty percent of construction workers are foreign born, according to the National Immigration Forum, and as many as 23 percent are undocumented, according to a 2021 report from the Center for American Progress.

The drive to “lay low and not show up for work,” as Turmail put it, is just the beginning.

A week after Trump’s Department of Homeland Security expanded the use of “expedited removal,” over 3,500 undocumented migrants have been arrested, according to daily statistics published by ICE.

How high that number climbs is anyone’s guess, but those at risk include temporary hires on H-1B visas, those protected under the Deferred Action for Childhood Arrivals (DACA) program and Temporary Protected Status or TPS recipients, who flock to construction work above any other industry, according to the Immigration Research Initiative.

Deportations will clearly hurt firms that hire undocumented immigrants first. But eventually, the pain will spread.

“If the total supply of construction workers shrinks in this country, that will impact the ability of everyone who does construction to get enough people to do the work on their books,” Turmail said.

A smaller pool of workers means a higher cost of labor, just as materials costs rise.

What’s brewing, then, is a perfect storm. And even as homebuilders shrug off any hit to “cycle times,” delays are an imminent threat.

“Anything that drives construction costs higher will, on the margins, reduce construction volumes,” Basu said.

If they squint, builders can find a silver lining in Trump’s promises to deregulate and hack through red tape.

The administration, for example, said it would open federal land for residential development, a move that could slash the cost of building a new home by over $90,000, a Realtor.com analysis found.

But some see a regulation rollback as a gathering storm.

“Reduced regulatory oversight creates fertile ground for [fraud],” Christopher Ward of construction advisory firm K2 wrote in ConstructionDive, explaining that less oversight can lead to mismanagement, which can spiral into “financial losses and reputational damage for companies involved.”

“While deregulation under a new Trump administration may offer certain economic benefits, it also necessitates heightened vigilance,” Ward added.