Apartment Developers Who Overbuilt Luck Out With Tariffs

April 15, 2025
Multifamily owners are slogging through a historic glut of new supply. The biggest wave of apartment construction in 40 years has pressured rent prices, forcing landlords to offer months of free rent and other incentives to fill their units. 

Now, with the cost of imported materials poised to soar and construction labor getting harder to find, this crush of overbuilding suddenly looks like a lucky break for the multifamily industry.

“It’s not like they necessarily knew what they were doing” in pre-empting the tariffs, said Moody’s director of economic research Ermengarde Jabir. “But they’ve lucked out.”

The whipsawing tariff announcements, rising economic uncertainty and stubbornly high mortgage rates are also a threat to the broader housing market. That is likely to keep many people renting longer, further buoying demand for apartments and single-family rentals. 

Rent growth was already primed for a rebound. The new-construction pipeline delivered more than 1.1 million units in 2023 and 2024, according to property-data firm Yardi Matrix, the most since the mid-1980s. Much of it was built in popular Sunbelt markets, cooling rents in even fast-growing cities such as Austin, Texas, and Nashville, Tenn.

A lot less new apartment construction is under way after that two-year crush of supply, which was launched when borrowing costs and material prices were lower. So, additional building costs related to tariffs will have a lighter impact. 

Landlords say the new supply should be mostly drained by year-end, setting the stage for rents to rise nationwide. 

Derrick Barker, who owns just under 1,000 apartment units in Atlanta, is already anticipating price increases. Barring a major recession, Barker said he could increase rents by “as much as 5% per year” on his apartments, which currently run between $950 and $2,600 a month. 

Not all companies in the residential business are this fortunate. Home builders are still constructing new houses and are trying to fortify themselves from higher costs. They were buying up materials like lumber, windows, cabinetry and steel to stockpile them before the tariffs hit.

While some of these materials coming from Mexico and Canada have received tariff exemptions, more than a quarter of U.S. imports used in residential construction come from China, according to the National Association of Home Builders. President Trump is imposing a 145% tariff rate on Chinese imports.

Trump’s crackdown on workers without permanent legal status could also take a toll on new home-building. Those workers make up an estimated 13% of the construction industry, according to a recent estimate from Pew Research Center.

“In another month or two, once these tariffs have been in the market, we’ll start to see real pain points,” said Ivy Zelman, executive vice president of housing research firm Zelman & Associates. 

Multifamily developer Northwood Ravin is counting on the industry’s construction slowdown. The firm currently owns roughly 10,000 apartment units across the Southeast and has had to offer two months of free rent to secure tenants over the past year. 

“If fewer developers can get shovels in the ground due to tariffs, we’ll see bigger spikes in rents and it’ll be more prolonged,” said Jay Rawls, who runs operations and technology at the North Carolina-based firm. He is so bullish on the lack of new supply coming after this year that he is the outlier who actually plans to keep building. 

Before the tariffs, the pace of construction was already decelerating. New housing starts, permits and completions were all lower in February than the year before, according to the U.S. Census Bureau. 

Already, in major metro areas such as Manhattan, net effective median rent, which accounts for landlord concessions, surged to the highest level on record, according to a Douglas Elliman report. 

Landlords won’t completely escape every tariff threat. Barker is expecting to take a slight hit in operation costs such as repairs and maintenance. And if the global trade war leads to a U.S. recession, as many economists see increasingly likely, then rents may have to come down.

But for now, high home prices and limited for-sale inventory mean many renters have little choice but to renew leases and pay up. Many would-be buyers have been waiting for prohibitively expensive mortgage rates to come down. But even through the market tumult of the past week, rates are stuck hovering over 6.5%. 

The cost of buying a home is still expected to be roughly a third more expensive than renting by the end of the year, according to a December estimate from real-estate firm CBRE. And the recent plunge of consumer sentiment indicates that prospective buyers may further hesitate to spring for a major purchase like a home. 

“In a period of negative disruption, people want to stay put a little longer,” said Matt Vance, who leads multifamily research for CBRE.

By Rebecca Picciotto (WSJ)


      

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