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Tariffs: Five Observations on the Potential Impacts to Multifamily and BTR
And why the headline narratives are likely wrong about tariffs leading to big rent increases (at least any time soon).
Jay Parsons
April 24, 2025
Sponsored by: JPI and Madera Residential
I don’t want to add the parade of hot air on tariffs. Like many of you, I roll my eyes every time I read or see someone prophesying the outcome with great certainty.
The sobering reality is there’s a broad range of possible outcomes. And the story seems to change daily.
So let’s look at what we DO know right now – and what impacts we COULD plausibly see play out over the coming weeks and months.
(Also: If you’re more a listener than a reader, check out this week’s podcast all about the potential impacts of tariffs on apartments and BTR, featuring special guests Scott Villani and Dan Hull of NRP Group, the nation's fifth-largest apartment builder. They open up their playbook and share what impacts they're seeing from tariffs, and how NRP is evolving to keep new projects going. Available on Apple, Spotify or YouTube.)
Five thoughts and observation on the potential impact of tariffs on multifamily and BTR:
1. The impact to construction costs is likely lower than you think.
In my conversations with multiple developers, I’ve consistently heard numbers in the 1-3% range for bread-and-butter wood-frame construction. That is not immaterial, particularly on $100m+ projects, as it adds yet another hurdle for developers already challenged by high rates and flat/falling rents and lease-up competition. But it’s also not necessarily a “nail in the coffin.”
The impact would likely be higher if you’re building with Canadian lumber or heavily dependent on China-based suppliers. But one thing I’ve learned from apartment builders (and something NRP’s Dan Hull mentioned on my podcast this week) is that back in 2018 when Tariffs Round 1 made news, many developers started reducing their exposure to China. We saw shifts into other parts of Southeast Asia and into Mexico, as well. Not that those countries aren’t impacted by potential tariff hikes, too, but for the moment it appears that shift is paying off.
Another category would the cost impacts could be higher: high-rise construction relying on foreign steel. But here’s the thing: Developers will tell you high-rise construction has been tough to pencil for these past couple years even prior to the tariff issues. That’s due to the combination of high rates plus flat/falling rents and sticky construction costs. The general sense among investors today is that high-rise projects could be worth less than it costs to build them. And where you see opportunist buys below replacement cost right now, they’re often urban high-rises.
Additionally: We’re hearing that vendors are (so far) often willing to absorb much of the tariff-related cost increases. It’s not out of the goodness of their hearts. It’s because for the last 12+ months, completions have outpaced starts due to pre-tariff issues like the spike in capital costs. That’s opening up slack in the construction supply chain and in the labor force, so vendors may be willing to reduce their margins to stay competitive.
Bottom line: Interest rates (cost of debt) remains far more problematic for developers than tariffs -- at least in terms of direct impact to costs.
2. Tariffs DO NOT necessarily equate to big rent increases – at least not any time soon.
We’re seeing this hot take paraded even by economists who should know better. The theory that rents will spike due to tariffs makes no sense, and here’s why:
Apartment construction began plunging a couple years ago when interest rates spiked. Because of that, supply was going to dry up later this year (and into 2026-27) long before tariffs made headlines. That would/could put upward pressure on rents. That’s long been the bull case for multifamily. Tariffs will have nothing to do with that, if it happens.
Let’s apply some common sense here. It takes 2+ years to get a project planned, funded, approved, started and completed. So, logically, any impact from tariffs on supply – and therefore rents – wouldn’t come until 2027-28. Even then, though, we couldn’t cleanly assign all the blame to tariffs because (as noted earlier) rates remain far more problematic than tariffs on the construction pipeline.
But the argument against this narrative don’t end there.
You also have to account for a potential economic slowdown, which would likely crush demand.... and therefore put downward pressure on rents. That takes us to Number 3…
3. The real risk: A potential recession
One reason investors like rental housing is that it tends to offer a high floor than other sectors. Even in the Great Financial Crisis, national vacancy topped out around 8% and rent cuts were limited to the single digits. But of course, apartments and SFR are not fully immune to an economic slowdown.
In a recession scenario, households are more likely to double up -- creating more vacancy, and therefore putting downward pressure on rents. We could also see an increase in rental delinquency, especially at the lower ends of the market. That would delay the rent rebound that investors have been banking on (and even pricing into deals!).
We could also see an increase in rental delinquency, especially at the lower ends of the market. Some cities could even return to COVID-era policies that made rent payment essentially optional, opening the door to fraud without consequence.
On the flip side: The recession scenario would also prolong the construction drought -- allowing for a faster apartment/BTR rebound once the economy begins healing.
But again, in the short term: The potential for an economic slowdown is another reason why it’s a big stretch to suggest a tariff war will trigger more rent growth. That takes us to Number 4…
4. Keyword of the day: UNCERTAINTY
Uncertainty has a freezing effect on major decisions -- both for renters and for investors/lenders.
In Blackstone's recent earnings call, the word "uncertainty" came up 10 times. CEO Steve Schwarzman said “uncertainty around tariffs and their potential impact on economic growth and inflation has dramatically impacted investor sentiment. It's too early to assess the full implications of tariffs… Most important questions are, how sustained will this period of uncertainty be? And what are the second order consequences, both domestically and for foreign countries?”
Here's the thing: Uncertainty has a freezing effect on major decisions -- both for renter households and for investors. Uncertainty froze up the capital markets in 2020 and froze up renter demand (even amidst strong job/wage growth) in late 2022 and early 2023. (Of course, in both of those examples, the numbers stormed back as confidence returned.)
Uncertainty casts a shadow on the demand outlook as consumer confidence erodes. The demand drivers have been strong of late (Remember: Q1’25 was one of the best on record according to both CoStar and RealPage.) But uncertainty could force some would-be apartment renters to wait it out at Mom and Dad’s place a while longer.
It also compels some investors and lenders to shift into "wait and see" mode, too, absent a sweetheart deal. Sure, some investors will say they want to buck the trend and be buyers while others are sidelined. But in most cases, they’re probably banking on finding better deals than what was transacting a couple months ago – and that’s no sure bet. Most sellers have even more reason today to wait it out … if they can. More on that further down in this newsletter…
5. Best case scenario: A quick resolution bringing clarity to financial markets and restoring confidence among investors and renters
Quoting Blackstone’s Schwarzman again, he said: “We believe a fast resolution is critical to mitigate risks and keep the economy on a growth path.”
I don’t think anyone would dispute that point.
The upside here is if these issues are resolved quickly, we could see the apartment and BTR capital markets bounce back pretty fast – especially given the parallel slowdown in supply.
I’m going to quote Blackstone’s earnings call one last time, and this one’s from Jon Gray. He was talking about commercial real estate broadly, but the comment certainly applies to multifamily and BTR/SFR specifically: “The underlying facts of a lack of new supply, cost of capital coming down, that’s going to be the foundation for a recovery in real estate. And I think investors will want to go to it. There’ll be a little more hesitant in open ended funds, probably more biased towards drawdown funds and fresh capital. But as we get deeper and more positive performance, I think real estate will then start to get more traction.”
Blackstone made a point of saying they’re built for periods of uncertainty and have a ton of dry powder on hand – $177 billion in total! They talked on their earnings call about finding opportunity in the current market to play the longer game here, especially with public companies frustrated by their stock prices and feeling pressure from investors. So could we see more REITs taken private? Certainly would not be surprising.
It's a reminder (to me anyway) that in periods of uncertainty, buyers will likely want more value – more assurance that they’re buying at a discount – than they did even a couple months ago. And the need for that type of value – if sustained – likely caps total sales volumes. There’ll be a lot of rallying calls about looking for opportunities while others are sidelined, but still likely only a finite number of deals that most buyers will consider especially attractive opportunities unless this thing drags out a long time. And if it does drag out, you could see more owners forced into selling for various reasons. But we’re not there yet by any means, not at scale.
Bottom line is this: Whether you’re Blackstone or Mom&Pop Inc., you’re probably going to be better off once we get tariff uncertainty behind us. The faster that happens, the better.
— Now Spinning on The Rent Roll Podcast —
The Rent Roll with Jay Parsons podcast continues to rank in the Top 200 podcasts on Apple’s charts for investing-themed podcasts. Thank you for helping us grow so quickly after just 18 episodes!
Episode 31 dropped this morning, diving into the topic of tariffs and the impact to apartments and BTR in more depth. I’m joined by two executives from the nation’s fifth largest apartment builder, NRP Group, President of Construction Dan Hull and Chief Strategy Officer Scott Villani.
Episode 28: The Case for the Southeast with Madera’s (and ex-Starwood) James Kane
Episode 29: Dissecting Shifts in the NMHC Top 50 + A Conversation on Workforce Housing with Comunidad Partners’ Antonio Marquez
Episode 30: Q2’25 U.S. Apartment Market Update & Outlook with Cortland’s Lee Everett
JUST RELEASED TODAY (4/24/25) Episode 31: How Tariffs Could Impact Apartments and BTR.
