Trump tariffs could drive up Australian home building costs

US President Donald Trump’s sweeping tariffs could push new home building costs in Australia even higher while potentially accelerating Reserve Bank interest rate cuts.

The president announced new tariffs of at least 10% across most countries, including Australia, on Wednesday.

These taxes on imported goods are paid by the importer, with the additional costs often passed on to consumers.

REA Group senior economist Eleanor Creagh said the tariffs might impact new home building costs.

“It’s fairly unclear what the end outcome will be at this stage and for the housing market, it’s likely a tug of war with headwinds and tailwinds,” Ms Creagh said.

“If we end up with higher prices for goods used in construction, that could increase prices when it comes to new builds and renovations.”

Construction costs have already risen significantly in recent years, with the average cost of a completed home increasing by more than 28% between 2019 and 2024, according to the Australian Bureau of Statistics.

The industry has seen improvements over the past year, but many builders report activity remains below pre-2020 levels.

Ms Creagh noted the tariffs could also influence interest rates in Australia.

“On the other hand, if there is a hit to global growth, we could see that bring forward the pace of the Reserve Bank’s interest cuts which could stimulate homebuying demand,” she said.

Financial markets have reacted strongly to the tariff announcement, now pricing in a roughly 90% chance of an interest rate cut in May, according to Bloomberg.

Markets are also predicting up to three more interest rate cuts by the Reserve Bank this year, anticipating slower global growth due to the tariffs.

This follows the RBA’s decision to hold interest rates at 4.1% on Tuesday after cutting rates at its previous meeting.

Consumer confidence could be another casualty of the trade tensions, according to Ms Creagh.

“If things escalate, we could see confidence dip, especially in decisions like buying a home,” she said.

“Though these factors may influence the Australian housing market, local market conditions are likely to remain the primary driver.”

Despite these potential disruptions, she maintained a cautiously positive outlook for property prices.

“Overall, we think home prices will continue lifting but it’s likely we’ll see a more modest pace of home-price rises relative to recent years,” Ms Creagh said.

The latest tariffs are part of an escalating global trade war, following additional tariffs imposed on Canada, Mexico and China in recent months.

The new measures also include a 25% tax on all imported vehicles.

While Australia faces a 10% tariff, dozens of other countries will incur even higher import taxes.

In the United States, the tariffs could exacerbate housing supply challenges.

“The US faces a supply gap of nearly 4 million homes, and the only long-term solution to this problem is to build them, but the implementation of these tariffs will make it more costly to do so, putting a question mark on whether they can be built at the lower price points that are most undersupplied,” Realtor.com senior economist Joel Berner said.

The National Association of Home Builders estimates approximately 10% of building materials used in US home construction are imported.