Tariff whiplash and HUD cuts could cripple affordable housing development
Next City reports developers indicate increasing construction costs and cuts to federal funding will upend America's affordable housing progress.
Tariff whiplash and HUD cuts could cripple affordable housing development
Updated
President Donald Trump's sweeping tariffs on foreign goods have affordable housing developers staring down the barrel of a gun. Not only have existing tariffs on steel, aluminum, lumber, home appliances, and other construction materials prompted fears of a recession, but threats of new tariffs have made an already-hurting housing market much more uncertain to navigate.
For the past decade, Monica Martinez has led the Fax Partnership in Denver, a community development nonprofit that builds affordable housing along the rapidly gentrifying East Colfax corridor.
The Fax currently owns 40 motel units that have been converted into shelter options for people experiencing homelessness. The nonprofit plans to redevelop the property into affordable housing once a billboard lease expires in 2028. Martinez says the organization is also working on a proforma for a 110-unit workforce housing development in the neighborhood.
But finalizing those plans has become increasingly difficult because of the uncertainty caused by Trump's tariffs and extreme cuts to the Department of Housing and Urban Development.
"The challenges to make these deals economically viable are already numerous, including construction and labor costs, in addition to permitting and the escalating cost of insurance," Martinez tells Next City. "As a result, many units will not be built despite the acute need for units."
For instance, nonprofit developers like The Fax need to apply for state and federal tax credits to financially support building affordable housing. Those tax credits have become more important as the cost of labor and materials have increased in recent years. However, the amount of uncertainty created by the tariffs and HUD cuts has jeopardized many affordable housing deals.
"There are very little margins to make these deals pencil, despite the great demand for affordable units," Martinez says. "Increased costs to wood could result in deals not being viable, resulting in reduced affordable housing development."
The Fax Partnership's struggles illustrate how the uncertainty created by Trump's whiplash over tariffs and the cuts to HUD are impacting affordable housing. While almost no part of the U.S. economy has been spared from the uncertainty, experts like Martinez are concerned that Trump's actions could upend the progress made to address America's affordable housing crisis.
The federal government has played an important part in developing affordable housing for decades. Not only does it provide grants and loans for subsidized affordable housing, the government also has multiple programs to preserve and maintain affordable units.
Depending on who you ask, the U.S. faces a shortage of between 4 million and 7 million affordable homes. Addressing this gap was one of the key policy concerns for former president Joe Biden's administration. Under Biden, HUD invested $5.5 billion in 1,200 communities to build more affordable housing, preserved more than 30,000 affordable units through the Green and Resilient Retrofit Program, and allocated more than $100 billion in rental assistance to 2,100 public housing agencies.
However, the Trump administration is reversing course. The administration has proposed gutting HUD's staff by 50% with deep cuts to the offices that oversee the Housing Choice Voucher program and enforce fair housing laws. Trump has also threatened to impose tariffs on trading partners like Canada and Mexico, which supply important homebuilding materials like steel, wood and aluminum.
Tariff damages
Trump imposed 25% tariffs on imports from Canada and Mexico and an additional 10% tariff on raw materials from China on March 3. He delayed those tariffs until April 2 after the markets soured. A week later, Trump raised tariffs on steel and aluminum imports from Canada and Europe to 25%, a move that caused both countries to place reciprocal tariffs on goods exported from America.
Already, the National Association of Home Builders says some of its members have estimated that the tariffs on building materials could raise the average price of a new home by $7,500 to $10,000.
While the financial impact of the tariffs has yet to be felt by American consumers, they have created a lot of uncertainty among investors. Metropolitan State University economist Alexandre Padilla tells Next City that uncertainty is the most damaging aspect of the tariff whiplash.
"In essence, these trade agreements are not being supported, and the investors are just going to pull their money away," Padilla says. "And that's what we observed in the market."
Trump has consistently defended the tariffs as a way to protect American industries. But Padilla says the way Trump has described the tariffs is not accurate.
Padilla says it is a good thing that countries can import goods like lumber, aluminum and steel into the U.S. at a lower cost than they can be produced domestically. Those lower costs benefit both businesses and consumers, he adds.
"We should embrace the fact that some countries subsidize the production of sales and sell us lumber and all those things necessary to build housing at a lower price," Padilla says.
Outside of the cost of materials, Trump's tariffs have also created uncertainty among U.S. trade partners. The U.S. imports roughly 30% of the wood used in residential and commercial construction from Canada. Mexico supplies about 71% of all gypsum imports, a material that is used to make drywall. Placing additional tariffs on these materials could increase construction costs for new homes by between $17,000 and $22,000 over the next year, according to a report from property analytics firm CoreLogic.
"These haphazard executive actions will cause serious economic impacts and injuries that will undermine our already fragile housing market," Nikitra Bailey, executive vice president of the National Fair Housing Alliance, told the House Financial Services Committee during a hearing on March 4.
Affordable housing crunch
The cuts to HUD also threaten the amount of financing available for affordable housing developments. For instance, HUD has paused more than $1 billion in grants under the Green and Resilient Retrofit Program and canceled nonprofit capacity-building grants—also known as Section 4 grants—for several prominent housing developers, including Enterprise Community Partners and Local Initiatives Support Corp.
GRRP grants were designed to help affordable housing providers upgrade their properties with green energy technology. Section 4 grants support the building of affordable homes in rural and Tribal communities as well as senior housing and child care centers. Approximately $60 million in Section 4 funding was taken off the table because of the move.
Over the past decade, Enterprise has deployed Section 4 grants in about 700 communities, resulting in the construction or preservation of 45,000 affordable homes.
In California alone, cutting Section 4 and other funding sources could disrupt 44,000 planned housing units that are waiting on final approvals, according to Enterprise.
Enterprise CEO Shaun Donovan said in a statement that the decision will "raise costs for families, hobble the creation of affordable homes, sacrifice local jobs, and sap opportunity from thousands of communities in all 50 states."
Several housing organizations sent a letter to Congressional leaders describing the devastating impact the HUD staff cuts will have on affordable housing.
"Rather than improving efficiency, such drastic staffing cuts at HUD will cause significant, harmful, and costly delays and will worsen America's affordable housing and homelessness crisis, as well as its significant disaster recovery needs," the letter reads in part.
This story was produced by Next City, a nonprofit newsroom covering solutions for equitable cities, and reviewed and distributed by Stacker.
Originally published on nextcity.org, part of the BLOX Digital Content Exchange.
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