The Trump administration's tariff policies are creating both challenges and potential opportunities for real estate investors. While Wall Street has expressed concerns about the impact of tariffs on corporate earnings and inflation pressure, the multifamily, self storage and industrial sectors may actually benefit from these trade policies. Tariffs on building materials will likely increase construction costs, further constraining new supply and potentially supporting rent growth in existing properties.
The tariff situation could also accelerate "friendshoring" trends, where companies relocate operations to politically aligned countries, potentially boosting regional economies where multifamily demand is already strong. However, President Trump's demeanor towards Canadian and, to a lesser degree, European economic integration which adds another layer of complexity.
At the same time, rising inflation due to tariffs may limit how much the Federal Reserve can cut interest rates, affecting financing costs for developers and investors. Analysts project that in a high-tariff scenario, U.S. exports could flatten in 2025, with some economists modeling a scenario where average tariff rates on goods imports increase by 10 percentage points—equivalent to a 25% tariff on Mexican and Canadian imports.
Despite these headwinds, industry experts anticipate a potential rebound in the multifamily sector later this year. With new multifamily permits having dropped 20% in 2024 and completions expected to fall another 15% in 2025, this supply slowdown is projected to push rents higher, especially in high-demand markets like Atlanta, Phoenix, and Dallas. Many major multifamily markets should see positive rent growth and stable vacancy rates by mid-2025, with only a few laggard markets taking longer to recover.
February's housing data painted a picture of contrasting trends in the multifamily sector, with permits continuing to decline while starts showed surprising resilience. Multifamily permits fell by 4.3% from January to a seasonally adjusted annual rate of 404,000 units—down nearly 16% year-over-year. In contrast, multifamily starts jumped 12.1% from last month to 370,000 units, though still 6.6% below last February's pace.
This mixed performance suggests the market may be approaching a turning point after months of contraction. The number of multifamily units under construction has stabilized at 754,000, though still down 21% from last year, while completions fell 20.7% month-over-month and 15.8% year-over-year to 512,000 units.
The single-family sector also shows mixed signals, with permits dropping 3.4% annually to 992,000 homes, while starts fell 2.3% year-over-year but climbed 11.4% month-over-month to 1.108 million units. Completions rose 7.1% for the month but remained slightly down from last year.
This evolving housing landscape unfolds against a backdrop of solid but potentially vulnerable economic growth. The U.S. economy expanded at a 2.4% annualized rate in the fourth quarter of 2024, slightly better than previous estimates due to higher net exports. However, this economic resilience comes as Moody's warns that America's fiscal strength is deteriorating due to widening budget deficits and mounting debt, projecting that U.S. debt-to-GDP will rise from nearly 100% in 2025 to around 130% by 2035.
The bottom line: While multifamily permitting continues to slide, the recent rebound in starts and steady construction levels hint that the market may be approaching a bottom. Developers are treading carefully, but demand-side factors like high mortgage rates and persistent rental demand, combined with supply constraints partially driven by tariff policies, could set the stage for renewed momentum in the sector by late 2025, particularly in markets with favorable supply-demand dynamics.
