The Policy Trifecta Squeezing the Housing Market
Production is down and costs are up. Is this what oversupplied cities need?
Higher interest rates, the trade war with Canada and mass deportations are having a devastating impact on housing production and affordability, according to several trade groups.
Members of the Associated General Contractors of America that work on multifamily construction report a steep and prolonged downturn in projects since the current administration began implementing policies that reduced the construction labor force and raised the cost of imported materials, according to Ken Simonson, chief economist of the AGC. Many multifamily owners are discovering that a well-performing property is not necessarily a refinance-ready property.
The number of units started in larger multifamily projects—those with five or more units—tumbled from a seasonally adjusted annual rate of 629,000 in November 2022 to 344,000 in August 2026, a decline of 45 percent, according to AGC.
The deportation effect
While evidence that mass deportation is affecting multifamily production is anecdotal, an impact is likely, given the industry’s existing labor shortage and the current heightened immigration enforcement policies, according to Jorge González-Hermoso, senior research associate for the housing and communities division at the Center for Local Finance and Growth.
“We would expect that states where higher shares of construction workers were born outside of the United States would be more likely to be impacted, such as Texas, California, Florida, New York, New Jersey, Nevada, Maryland, Connecticut and Georgia,” said González-Hermoso.
Within those states, localities that have agreements with DHS allowing state and local law enforcement officers to be deputized to perform federal immigration duties could also see greater impacts, he added.
In a Fox Business interview, Home Builders Institute President & CEO Ed Brady noted 300,000 current job vacancies in the building trades industry, including both homebuilding and multifamily.
Furthermore, the Associated Builders and Contractors of America estimated that the industry must attract approximately 349,000 net new workers in 2026—rising to 456,000 in 2027—in addition to normal replacement and hiring to keep pace with demand.
The AGC does not track construction force deportations. However, 29 percent of respondents to an AGC workforce survey conducted in July and August reported that they had been affected directly or indirectly by immigration enforcement actions in the previous six months.
Of the four Census regions, contractors in the South were affected the most, with 42 percent of respondents reporting impacts. Nationally, 6 percent reported being visited at a jobsite or other location by immigration enforcement agents, 12 percent said workers had left or failed to appear because of actual or rumored ICE activity and 16 percent said subcontractors had lost workers.
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“The sudden disappearance of even a few workers can cause work to halt for that day and throw off the schedule for subsequent steps until replacement workers can be brought in,” Simsonson said. “Any delay is costly, especially if the contractor faces penalties for late completion or must pay overtime and higher wages for replacements.”
Mass deportation threatens to shrink the already undersupplied labor market for construction workers, forcing builders to employ workers with less training and experience or hire ones that can command higher wages, noted Joel Berner, senior economist at Realtor.com. In either case, the increase in the cost of labor and lost time will be passed along to buyers.
Thirty-five percent of all craft workers in 2024 were immigrants—documented and nondocumented—nearly double the 18 percent immigrant share of all U.S. workers, according to analysis of the Census Bureau’s American Community Survey. But the Center for Migration Studies estimates that 54 percent of foreign-born construction workers are undocumented.
The foreign-born share differs greatly by craft, with immigrants accounting for more than half of building envelope crafts. Occupations such as crane operators, steel erectors and highly skilled tradesmen (electricians, plumbers, carpenters) have slightly lower immigrant shares than the all-industry average.
The loss of craftsmen in lower-skilled jobs such as general labor, drywall, roofing or painting, however, can cascade through a construction project, delaying work by electricians, plumbers and other trades that come later in the construction process. And research cited by the Urban Institute found that previous immigration enforcement activity resulted in declines in construction labor that led to a decrease in housing production.
How tariffs affect housing costs
Tariffs are adding to the cost of construction materials and making it more difficult to deliver affordable single-family homes, Berner noted. At the same time, they are driving inflation and mortgage rates up, squeezing buyers and forcing some to stay on the sidelines.
“Builders will be stuck producing a lower volume of higher-priced (single-family) homes that are harder to sell, which is the opposite of what we need to see to address the housing supply gap and improve affordability across the country,” he said.
High tariffs on building products and materials imported from Canada, China and Mexico are already compounding the negative impact on housing construction. In fact, tariffs on building materials from these three countries increased individual home construction costs by $7,500 to $10,000 on average, according to estimates by the National Association of Home Builders, with some projections of as much as $17,000 to $22,000 for newly built single-family homes.
The Bureau of Labor Statistics reported that between August 2025 and August 2026 the producer price index jumped 27 percent for aluminum mill shapes, 23 percent for steel mill products and 21 percent for copper and brass mill shapes. These prices, which are charged by domestic sellers, reflect a variety of factors, but it’s significant that the increases quickly followed the rollout of tariffs as high as 50 percent on imported products, according to Simonson.
Additionally, a quarterly survey by the National Multifamily Housing Council conducted in September 2026 reported that 33 percent of participating builders and developers said their material costs had increased faster than the rate of inflation between July and September. Fifty percent said their costs increased about the same as inflation or were unchanged.
The survey, which included responses from 60 leading multifamily construction and development firms nationally, also reported 29 percent fewer construction starts, a 22 percent increase in labor costs, 51 percent seeing deals repriced and a 12 percent increase in delays.
Simonson also noted that contractors in border and Great Lakes states were affected by a 50 percent tariff on Canadian cement, while firms in multiple regions that use Canadian softwood lumber have been rocked by high duty rates.
Impact of a rate hike on housing
Driven by supply pressures, higher housing and energy costs and geopolitical conflicts, inflation has increased from 3 percent in January 2025 to 3.7 percent in September. With the job market stable, the Fed decided to raise interest rates in September from 3.75 percent to 4 percent to hopefully cool inflation.
As a result, the 30-year fixed home mortgage rate spiked to its highest level in three years, climbing to more than 7 percent, putting homeownership out of reach for thousands of American families.
Mike Fratantoni, senior vice president & chief economist at the Mortgage Bankers Association, noted in an MBA insights report that longer-term rates, including mortgage rates, had already baked in the expectation of hikes at this and future meetings. “Thus, longer-term rates have not moved much in response to this news,” he wrote.
Even so, with the announcement of a rate hike, housing sales and mortgage originations slowed abruptly. Meanwhile, new home prices dipped as rates moved up. According to Census data, the average sales price of new homes sold in August 2026 was $478,700, down 8.8 percent from $526,400 a year earlier.
“I presume this decline in prices is due to the persistently high mortgage rates that require home prices to compensate for increased loan costs,” said González-Hermoso.
He also noted that higher interest rates impact multifamily housing in two ways. Renting can be more financially viable than owning, thus increasing the demand for rental homes and apartments.
On the other hand, it affects the cost of capital for developers, making it difficult for many deals to pencil, unless they find cost-saving opportunities or pass the higher cost on to renters. (Treasury rates have been hovering around 5 percent since mid-September.)
MBA expects another 25-basis-point increase in short-term rates by year-end and another rate hike in the first quarter of 2027. It expects mortgage rates will stay near current levels, but mortgage originations will fall by 5 percent.
The roots of the problem
The Urban Institute estimated that from 2010 to 2023, U.S. households increased 13 percent, while all types of housing units increased only 10 percent. Meanwhile, an analysis by the Brookings Institution found that the housing market in 2023 was short 4.9 million units nationally relative to the mid-2000s.
Indeed, many regions—like Southern California, New York City, New Jersey and Hawaii—have a housing shortage, particularly of housing affordable to middle- and low-income residents. But other areas of the country—particularly Sun Belt cities like Austin and metros like Tampa, Jacksonville and Nashville—can actually be considered overbuilt.
Brad Dillman, a principal at Florey Street Advisors, contended that the U.S. is actually overbuilt by 1 million housing units.
Dillman cited a decline in institutional-grade multifamily rent growth as evidence. He described the current multifamily housing market as one of the worst bear markets in recorded data, with inflation-adjusted rents falling immensely for several years, particularly in the Sun Belt.
According to Yardi Matrix’s National Report for September 2026, rents in Sun Belt markets were “less negative” due to the slowdown in supply growth.
