CHAMPAIGN — This spring, the lumber yard at LS Building Products in Champaign looks different: stacks of two-by-fours, vinyl siding and plywood stretch higher than usual, packed snug into every corner of the yard.
“There’s a ton of overstock lumber in the yard right now,” said warehouse manager Gilvie Zook. “And honestly, in this yard alone, we haven’t had probably this much lumber here in five or six years.”
This is the first time they have overstocked to this level since COVID-19, he said, and it’s all because of recent tariffs and market uncertainty.
On April 2, President Donald Trump announced tariffs on imported goods from all around the world. The baseline tariff is 10%, in addition to higher “reciprocal tariffs” for more than 90 individual countries.
The tariffs affect almost everything, from clothing and luxury goods to automobile and construction materials, including aluminum.
Canadian lumber is not currently on Trump’s tariff list, but the U.S. Department of Commerce plans to also more than double existing duties on softwood lumber from Canada, which could drive up the average cost of new homes by as much as $9,200, according to the National Homebuilders Association.
‘The uncertainty is what creates the problem’
The uncertainty surrounding trade policy led many wholesalers, like LS Building Products, to stock up in anticipation of potential price hikes.
“With this talk of some tariffs possibly happening, we went ahead and increased our inventory levels just to kind of offset some of that,” said Troy Reed, owner and president of the company, which is based in Peoria.
The recent trade policy shifts threaten to drive up costs at a time when housing demand is already outpacing supply.
With tariffs leading to cost renegotiations with contractors, some projects may die, said Collin Carlier, chief executive officer of Royse + Brinkmeyer, a development company in Champaign. He anticipates the company’s current projects will be okay because they’ve already secured the supplies they need, but he’s concerned about the broader housing industry in the area.
“The uncertainty is what creates the problem,” he said. “We view real estate development like looking at 100 traffic lights all in a row. And they all have to turn green but at the right time.
“So right now we’re at a project where the first 70 traffic lights are all green, and all of the ones that have already turned green have been construction costs. But now, we have to go back to traffic light number 20 because something changed. That’s very costly to the project, because we can lose four or five months of time, the project might die.”
Higher costs mean higher rent
Rent is already going up in central Illinois, Cartier said, and the increased construction costs may exacerbate the situation.
“Apartment rents are spread over the cost,” he said. “So the cost of interest rates, the cost of lumber, the cost of all of the inputs, and then there needs to be some margin on top of that. “
This rent hike is particularly concerning for Champaign County, which has been experiencing a housing crisis, according to Anna Hough, a social worker at Champaign County Regional Planning Commission. She says supply shortages in housing have cascading effects.
“Higher-end apartments and affordable housing are inextricably linked,” Hough said.
When there’s not enough housing that’s affordable for middle-income residents, those renters or prospective homebuyers turn to the affordable housing market, she said, which drives up costs for those homes.
“So people on lower incomes, maybe fixed incomes, are competing against tenants who have higher incomes, higher credit score, maybe a better rental history, no eviction, which pushes the people who need affordable housing onto the streets, into shelters,” she said.
Hough said homelessness has increased over the last 10 years, as rental costs went up about 57% since 2015.
“Homelessness is a housing issue,” Hough said, and having affordable options is essential to prevent it.
“New construction is really important when you talk about homelessness and you have people who are homeless doing everything they’re told to do or that they’re doing everything right —they’re working full time, they have childcare — and they still can’t get into places,” Hough said. “It’s because places don’t exist for them to get into.”
Champaign City Council Member Kathy Shannon said the majority of Champaign residents are having a hard time paying their rent.
“Fifty-five percent of renters in Champaign are what is known as ‘rent burdened,’’ meaning they’re paying more than 30% of their income for housing,” Shannon said. “So that’s a lot of people who are on edge, who are going to be thrown out of their housing if they miss, you know, just a couple of paychecks.”
Supply chain disruptions may slow down construction
Beyond lumber, tariffs on aluminum and other materials used in home construction could further drive up costs. Greg Howard, an economist and professor at the University of Illinois Urbana-Champaign, says tariffs tend to benefit small groups of domestic workers at the expense of broader economic stability.
“Economists typically think of the benefits of tariffs as being very concentrated…for small groups of people,” Howard said. “But with their trade, it’s a bigger loss for everyone than it is for those few people.”
Besides direct price hikes, Howard said the timeline of new construction in the area can be affected due to supply chain disruptions.
While the idea of tariffs is to fuel domestic production, some goods simply cannot be substituted by America-made products. Among those are lumber and aluminum, where Canada remains the leading supplier accounting for over 60% of all U.S. imports.
“For some goods, it might be very easy to substitute for American-made products,” Howard said. “For other goods, it’s extremely hard. So, I mean, when you think about it, goods like lumber, a country can’t just suddenly have a lot more trees.”
What might the future hold?
It’s unclear what impact tariffs will have on complex goods — products made up of many components. In housing construction, these include things like kitchen appliances, HVAC units, plumbing, electrical and lighting systems.
“For a lot of complex industries, we don’t know exactly how tariffs will matter because the supply chains involve crossing borders multiple times, and with these broad-based tariffs, that can mean that the intermediate goods get taxed quite a few times,” Howard said. “It can make it not just 25% more expensive, but even more expensive than that.”
During Trump’s first term, he introduced tariffs on China, which ended up hurting companies more than consumers, according to Howard.
“What we saw was that both the tariffs and the retaliatory tariffs that came from China, largely hurt U.S. firms, in the sense that they had to pay more for intermediate goods [but] they actually didn’t pass them along to consumers as much as we might have thought,” he said.
High tariffs, Howard notes, were among the factors that contributed to the Great Depression.
“One of the causes of the Great Depression was that in the middle of the downturn, the U.S. raised tariffs significantly,” Howard said. “Economists generally think that hit the Great Depression worse than it would have otherwise been.”
From the supplier’s perspective, Reed said price fluctuations for construction materials year to year are normal, and he predicts housing prices overall won’t spike too much as a result of Trump’s tariffs.
“The overall price of a home, I believe, it will be a single digit [percent] increase,” Reed said. “It’s not like a house is going to go up 25% overall…but I think the 2 to 3% range.”
He said he expects demand for housing will continue to grow, following the trend of the past few years.
“I still feel like that new construction is still going to be a strong year and will continue to be for the next several years, I believe,” Reed said. “There’s still a really big pent-up demand… we’re already seeing it.”