Housing affordability and tariffs in real estate

North Idaho and the Spokane area are generally insulated from national disaster trends: floods, earthquakes, tornados, persistent wildfire outbreaks, etc. The region has continued to be a place people want to move to: population growth has been strong over the past decade, and still it remains a really nice place to live.

There are certain challenges however, to sustain smart growth and the lifestyle, one of which is housing affordability. Not having a sufficient supply of workforce housing that the median household income can support is changing the demographic make-up of our communities: North Idaho is statistically significant in the 60+ age retirees group. These folks are not active participants in the job market, and a thin labor pool will eventually blunt economic growth. A shortage of skilled younger workers affects large scale investment like manufacturing facilities, but also small businesses too, like local restaurants. The housing issue affects both the urban and rural areas. It’s an issue that has been forming over many years, with roots based in the economic calamity of 2008, and it’s an issue that has national factors as well as local forces shaping it.

Interest rates, for mortgages and for new development projects, are a national phenomenon, whereas zoning regulations that stifle housing innovation, tend to be more localized. It is a complex issue that will take concerted effort and time to resolve, and now there’s a new factor thrown into the mix: the tariffs imposed on the various inputs in building and renovation. The tariffs have had an immediate effect, with tariff surcharges now appearing on invoices and estimates for new projects. Up to 60% of new construction materials come from two countries: Canada and China, and these two suppliers have been especially targeted. No one yet knows the full extent, or for how long, these increased costs will be around, but prices are “sticky downward,” i.e. once they go up they only slowly decrease, if at all. There is a quantitative impact: the price of gypsum used in making drywall went up 22% last week. Softwood from Canada used for 2 x 4s went up 60%.

But there is also a psychological effect: new projects that might have worked with yesterday’s pricing now no longer pencil out with costs 30, 40, 60% higher. With all the uncertainty, many projects are being shelved to see where this all shakes out. The tariff situation is a national factor but it very definitely affects the local building environment. It’s one of those “didn’t see that coming” type of challenges. The perfect storm of the housing crisis just got upgraded from a Category Four to Category Five.  

• • •

Raphael Barta is an Associate Broker with a practice in residential, vacant land, and commercial/investment properties (Raphaelb@sandpoint.com).