Monday, August 12, 2019

Tariffs, Crackdowns, And Housing

Hello Everyone:

It is a bright beautiful Monday afternoon and the start of a new week.  Blogger spent part of Friday gagging at a picture of the president and first lady holding a 2-month old infant orphaned by the El Paso shooting.  The words depraved and vacuous come to mind.  Onward.

Image result for affordable housing

 Today, we are going to chat about how affordable housing has been impacted by tariffs on aluminum, steel, and lumber.  The impact steel, aluminum, and lumber tariffs were already being felt in 2018, when the trade tariffs, levied on China, went into effect. 

Steel, aluminum (; Mar. 8, 2018; date accessed Aug. 12, 2019), and lumber are three of the basic building materials used to create new housing units.  When that the cost of materials goes up, it deepens the affordability crisis, that will be more acutely felt in dense urban areas.  The tariffs came on the heels of harsher immigration enforcement, which severely curtailed migrant workers, needed to work on job sites.  Put the two together and you get more expensive housing now and in the future.

In early March 2018, the Trump administration indicated (; Mar. 5, 2018; date accessed Aug. 12, 2019) that it would increase steel tariffs to 25 percent and aluminum tariffs to 10 percent (; Mar. 13, 2019; date accessed Aug. 12, 2019).  The point of the steel tariffs is to gin up the U.S. steel industry--which employs only 143,000 worker (Ibid), centered mostly in the politically important Midwest--the Wall Street Journal (; Mar. 1, 2018;  date accessed Aug. 12, 2019) noted that the steel tariffs could impact employees in other steel-intensive industries, like the manufacturing industry.  Mexico and Canada are exempted from the tariffs, however the U.S.'s North American neighbors only account for 25.61 percent (; Mar. 8, 2018; date accessed Aug. 12, 2019) of steel imports.  The construction industry has been acutely hit the hardest by the tariffs, which is bad news for renters and prospective homeowners.  This means as new supplies continue to fail to meet growing demand, this could result in more intense pressure on rents and housing prices.

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Rolled steel

  Nolan Gray writes, "Nearly half [; date accessed Aug. 2019], with a large share of that steel going into multifamily housing.  While wood frame construction is increasingly common for apartment buildings up to five stories, the taller structures that needed in white-hot housing markets,... depend entirely on accessed to steel" (; Mar. 13, 2019).

A study released by the Trade Partnership (; Mar. 5, 2018;  date accessed Aug. 12, 2019) found that "steel tariffs could lead to 28,000 lost jobs in the construction industry" (; Mar. 13, 2019).  This means a lot of housing unit will not be built and the affordable projects, already functioning on tight margins, will be the first to be cut.  Mr. Gray reports with a trace of optimism, "While exemptions from the tariffs might offer hope, the price volatility in the near term could still scuttle many large projects, where price certainty is crucial for investors" (; Mar. 13, 2019).

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Aluminum smelting process
If you are a housing investor, you want price stability.  Price stability means the project gets on time and under budget.  It means getting a healthy (you hope) return on your investment.  When you have a combination of harsher migrant worker enforcement and pointless tariffs, means the work and any return gets delayed or cancelled.  If this is this someone's way to jump start the steel, aluminum, and lumber industries, it is not working well.

The steel and aluminum tariffs followed other initiatives that hurt new housing construction.  In April 2017, the Trump administration slapped a 20.83 percent tariff (; Nov. 2, 2017; date accessed Aug. 12, 2019) on Canadian lumber, to the benefit of politically important Maine voters.  Within the construction industry, Canadian lumber is typically used for framing single family homes and small multi-family residences.  Jen Skerritt reported in Bloomberg Businessweek, "Canada is the major source of this framing lumber, and the rising prices that result from the tariffs means that builders are already raising prices and looking for ways to cut costs.  One alternative to switch to other materials such as steel or concrete,..." (; Mar. 5, 2018; date accessed Aug. 12, 2019)

The statement "looking for ways cut costs" should worry you.  One way to cut costs is using cheaper materials and building supplies (e.g. nails, pipes, window glass) which can compromise building safety.  It can also mean cutting labor costs, which could lead to dubious hiring practices.

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Concrete construction

Speaking of cutting labor costs, the ongoing crack down on labor is also doing damage to the construction industry.

Today, the Trump administration announced new restrictions on lawful immigrants.  Any lawful immigrant who accesses social welfare benefits--e.g. Medicare--could delay securing temporary visas, permanent resident cards, or naturalization.  The (il)logic behind it is that low-income lawful immigrant, legally entitled to access social welfare benefits are a public charge (i.e. burden) (; date accessed Aug. 12, 2019).  Why bring up this news item?

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Construction workers on the job
The reason is, a study conducted by the National Bureau of Economic Research (; Nov. 2016; date accessed Aug. 12, 2019) "found that over 1.1 million undocumented immigrants, many skilled in essential trades such as framing, work in the construction industry" (; Mar. 13, 2019).  No one is questioning their legal status and the obvious solution is to grant this available labor pool legal status and workers' protection.  However, even if migrant construction workers and their families have legal status, this draconian federal regulation would make permanently staying in the United States far more difficult, thus depriving the construction industry--as well as other industries--much needed workers.

The construction industry is already facing a major labor shortage (; Nov. 6, 2015; date accessed Aug. 12, 2019) because the administration's idea of immigration reform is deportation and go after the contractors that employ them.  The report found "that labor shortages are worsening, particularly in border states with high housing demands like California and Texas" (; Mar. 13, 2019).  Since labor makes up a sizable portion of residential building costs, labor shortages will mean higher rents and housing costs.

The tariffs and immigration crackdowns could not come at the worst possible moment for renters and prospective home owners.  Rents are rising in cities around the the country and affordable units are vanishing (; Oct. 31, 2017; date accessed Aug. 12, 2019).  Even the traditional ways of building new affordable housing units is going away.  Nolan Gray reports, "Following tax reform, the value of low-income tax housing credits, which subsidize the construction of new affordable units, is collapsing" (; Mar. 13, 2019).  Further,  local efforts to wrest new affordable units from developers through inclusionary zoning in cities like Portland (; Jan. 31, 2018; date accessed Aug. 12, 2019) have been a major let down.  Further, as renters continue to get squeezed, mortgage rates (; Feb. 18, 2018; date accessed Aug. 12, 2019) are going up, making it harder for renters to become owners.  There are a million reasons why housing is so expensive, including unnecessarily restrictive land-use regulations (; Nov. 4, 2015; date accessed Aug. 12, 2019) but tariffs and crack down on immigrant workers only make things worse.

The Trump administration tells itself that it the tariffs and crack downs are helping the small number of workers in the steel and lumber industries, but really it is doing the very opposite.  Nolan Gray perfectly sums it up, "...this kind of protectionism could instead end up hurting them--and a great many others" (; Mar. 13, 2019).  While the Trump administration wants a visual of steel workers proudly going back to work at newly reopened mills, what goes unseen are the million of families struggling to pay the rent or mortgage; unbuilt homes and apartments, and Americans who cannot afford to live in flourishing cities.


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