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Economist: Trade war to blame for rising construction costs, higher home prices in Colorado

Our Colorado: Trade war having big impact
Posted at 5:43 PM, Sep 24, 2018
and last updated 2018-09-24 20:21:23-04

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DENVER — President Donald Trump's trade war with China is having a big impact on construction costs for new homes in Colorado.

The latest round of tariffs on nearly 6,000 Chinese goods took effect Monday. Countertops, furniture, ceramic tile, and gypsum — a key ingredient in drywall — are included on the list and will soon cost 10 percent more.

"It's not looking good. New homes are already expensive and interest rates are rising," said Jack Strauss, a professor of economics at the University of Denver. "We have labor costs rising; we have raw materials rising; we have a shortage of workers — all this spells trouble for people looking for a new home."

The Home Builders Association estimates construction costs could go up 20 to 30 percent because of the tariffs. A price Strauss said Colorado homeowners would end up paying.

"It will cost the Colorado homeowner maybe $30 to $40 thousand more for a new home," he explained. "Considering rebuilding your basement, that'll cost more. Considering finishing your countertops in your kitchen, it will cost you more."

Builders are already feeling the pain from tariffs imposed on other raw materials including lumber, steel and aluminum.

"There are major challenges ahead," said Strauss. "$500,000 is the approximate price for a new home. Rising lumber prices, rising prices on furniture and drywall are going to compound this problem."

The September 2018 from Colorado legislative economist said higher construction costs are making it more difficult for builders to profit on low-priced or affordable homes. An area where they said demand is the highest.

"Being squeezed, builders only profit today from building the upper-end homes. In excess of $700,000, $800,000," said Strauss. "There's going to be problems related to affordability and housing."

Strauss said if a trade deal is not reached soon, the cost of building a new home in Colorado will only get worse come next year when the tariffs imposed today go up.

"Neither party looks like they are ready to back down, so that means by January 1, tariffs on new Chinese products may rise to 25 percent," he said.