08 Feb Trade war with China Impacts California Real Estate
In 2018 the U.S. Administration instituted tariffs on imported steel and aluminum. While new single-family homes do not use much of these materials in their construction, condominiums and apartment buildings rely on them. This cost is expected to be passed on to the renters and homebuyers.
California, in particular, can expect to see the impact of these tariffs in rising home prices. The state has a great need for multi-family housing and economists expect those costs to rise for builders and buyers in 2019. Compounding the problem further, acquisitions and investments from China into the U.S. fell 92% from January to May 2018, according to CNBC.
Here are some excerpts from an article by First Tuesday that talks about the trade war with China.
With the sixth-largest economy in the world, California is an attractive place for business and investment. Foreign investment, in particular, plays a significant role in California’s economy and real estate market.
However, the rising perils of an international trade war threaten to spill over into the state’s real estate market. The effects are playing out across California’s residential and commercial markets, raising prices and adding hurdles from investment to construction to sale.
In March 2018, the administration instituted a tariff of 25% on imported steel; and 10% on imported aluminum.
While new single-family residence (SFR) homes rely very little on steel or aluminum in the building process, commercial buildings rely heavily on these materials. Therefore, in the residential space, new construction of multi-family condominiums and apartment buildings has already become more costly for builders, according to MarketWatch. Much of this cost will be passed along to renters and homebuyers.
The implications are especially significant for California, which is in dire need of more multi-family construction. Most of the new homes being built here are in the high tier, where the potential for builder profit is highest. But recent legislative efforts have focused on encouraging builders to construct more affordable, multi-family buildings in the state’s heavily populated coastal cities.
Further, many of California’s real estate investors who are investing in (read: financing) commercial and multi-family buildings across the state are from the nations the administration set these tariffs against!
Consider this: acquisitions and investments from China into the U.S. fell 92% from January to May 2018, according to CNBC. Coupled with the sell-off of $9.6 billion in U.S. investment, China’s net investment in the U.S. was negative during this time. While part of this decline is due to the trade war and tightening immigration rules, some of this is due to government intervention originating in China.
This is especially worrying for California, which traditionally is the state with the highest number of foreign direct investors.
This stepping in by both governments prevents investment in major developments. But it doesn’t necessarily dissuade international buyers who want to purchase SFRs to live in.
The takeaway from additional tariffs is this: buying and maintaining a home is now more expensive than it needs to be.
However, California’s housing shortage — many call it a crisis — means homebuyers’ appetite for homes will not be diminished. Instead, homebuyers will continue to pay more money to purchase, leaving less of their income available for things like healthcare, transportation, consumer purchases, travel… essentially, less will be left for residents to enjoy the high quality of living that is becoming increasingly difficult to attain.