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Harney: Tariffs may boost cost of remodels

By Kenneth Harney

Published: October 8, 2018, 6:05am

Thinking about remodeling your home — redoing a bathroom or the kitchen? Or maybe purchasing a new home from a builder? Or simply buying new appliances?

Then get ready to dig deeper into your wallet as the Trump administration’s new $200 billion in tariffs begin to flow through to hundreds of the products that go into your planned project. They range from iron nails to flooring to granite countertops, tiles, sinks, roofing, cement, paints, cabinets, wooden and steel doors, windows, lighting, appliances and much more. And get ready to negotiate with remodelers and builders about “allowances” and escalation clauses as vendor pricing and availability of these imports become more difficult to predict.

New estimates from the National Association of Home Builders indicate that of the 6,000 items on the list of goods imported from China that are now subject to tariffs, 463 are “ubiquitous” in home construction and remodeling. They total roughly $10 billion in expenditures a year nationwide. If the White House raises the tariff to 25 percent from the current 10 percent early next year as threatened, “the industry-wide cost increase would be $2.5 billion,” according to David Logan, director of tax and trade policy analysis for the homebuilders group.

Tim Ellis, president of T.W. Ellis LLC in Forest Hill, Md., a remodeling firm that specializes in kitchens and home additions, estimates that the latest round of tariffs — along with the existing levies on Canadian lumber — now affect somewhere between 15 percent and 20 percent of the products in a typical project for his firm. They have the potential to increase costs to the consumer by anywhere from 5 percent to 10 percent or more, depending upon what the client selects.

“We are trying to absorb as much as we can until it starts to really impact our bottom line,” he told me. But like other remodeling firms, Ellis is also including flexible “allowances” in contracts that, in the event of big price hikes to tariff-affected products, give clients the flexibility to shift to alternative products that are not subject to the add-on levies.

For example, if the quartz or granite specified in the original job by the client has the potential to become much more expensive — or difficult to obtain — the contract might contain language that allows a shift to alternative sources that are not subject to tariffs. Ellis calls it “skating around the tariffs” on imports from China.

Bill Millholland, executive vice president of Case Design/Remodeling, says “we try to be honest with clients” but the tariff situation “puts us in a quandary. Do we bake in the 10 percent” increase expected from suppliers of Chinese products, or, looking months ahead, “do we bake in 25 percent?”

The Canadian wood tariffs are especially troublesome for remodelings that involve extensive framing and carpentry work. They’re already adding $2,000 to the price of a typical new home, according to Logan. Kitchen cabinet prices have undergone multiple increases in recent months. Millholland said they are already adding “significant” bumps to the prices of custom cabinetry along with other component increases. The “dirty little secret” in the industry is that “vendors started to ramp up prices” on various components even before the latest round of tariffs took effect, he noted.

Millholland estimates that 40 percent of the materials in major kitchen or bathroom remodelings are now affected by the tariffs. If a project is expected to cost $100,000, for instance, then $40,000 of the products in the job could be subject to tariffs, whether this year’s 10 percent tariffs or next year’s 25 percent.

The Chinese and Canadian tariffs are not the only ones worrying builders and remodelers. The administration has also imposed 25 percent tariffs on steel imported from many countries and 10 percent tariffs on aluminum. According to a study by Freedonia Group, a market research firm, these tariffs are affecting prices on “most indoor and outdoor kitchen appliances” to varying degrees based on how much steel or aluminum they use. They include stoves and ranges, ovens, refrigerators, freezers, gas grills, among others. Together, according to Freedonia, they “have the potential to upend a product market that accounted for more than $18 billion in sales in the U.S. in 2016.” Sales could “slump as consumers decide a new fridge or stove isn’t worth the price.”

The sobering bottom line: The tariff war is on. Building and remodeling are getting whacked, and the costs to you could go even higher soon.

Kenneth R. Harney of the Washington Post Writers Group is a past member of the Federal Reserve Board’s Consumer Advisory Council and is currently on the board of directors of the National Association of Real Estate Editors. Reach him at KenHarney@earthlink.net.

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