When President Trump announced his sweeping "reciprocal tariffs" in April 2025, you probably heard a lot of doom and gloom—higher prices, supply chain headaches, and job losses. And yeah, there's some short-term pain. But as a Santa Cruz resident, you might be surprised to learn that these policies could bring some long-term relief to our crazy housing market.
First off, I’m not in favor of the current tariffs! Let's break down how these tariffs could potentially reshape things right here in our backyard:
Inside this Article:
Trump Tariffs and the Cooling of Foreign Home Buying
Santa Cruz’s breathtaking coastline has long attracted deep-pocketed buyers nationwide and overseas. Foreign investment—particularly from China—has flooded California’s housing market for years, driving prices to staggering heights and pushing local families out of contention.
But President Trump’s aggressive new reciprocal tariffs, including a 145% rate on most Chinese imports (with some products facing 245% tariffs), along with steep rates on Vietnam (46%), Taiwan (32%), and a series of other countries, may finally cool this trend. The changes have been rapid, particularly for China:
- February 4: A 10% tariff on Chinese goods goes into effect
- Early March: Tariff rate doubles to 20%
- April 9: Most Chinese imports now face a 145% tariff, with some items as high as 245%
- May 2: Elimination of the duty-free exemption for shipments under $800. These items are now subject to:
- A 90% duty, or
- A flat fee of $75 per item, increasing to $150 after June 1
- A 90 day pause - what's going on?
If the tariffs lead to economic friction, reduced trade, or increased uncertainty for investors from China and the rest of the world, their appetite for American real estate, including Santa Cruz, could decrease. It might lead to increased risk associated with international investments, a less favorable economic outlook in the target investment location due to trade tensions and could also discourage speculative foreign buying. Fewer all-cash foreign offers could mean:
- You have a better shot at that cute Capitola cottage.
- Stabilization of housing prices, maybe even bring them down a bit
- More local homeowners entering the real estate market means stronger communities, not just empty investment properties.
Home Sweet Homegrown: Boosting Local Construction
Think about everything that goes into a house – steel, lumber, appliances. A lot of it used to come from overseas. Now, with tariffs, builders are looking closer to home, potentially increasing demand for U.S. products, even those affected by U.S.-Canada lumber tariffs.
- This could create manufacturing jobs right here in California or nearby states, which is a win for the economy.
- Shorter supply chains mean fewer delays. No more waiting months for that kitchen sink to arrive from overseas!
- While initial increases due to construction cost tariffs might occur, relying less on foreign suppliers can lead to more stable costs down the road.
Tariffs and the Shift Toward More Affordable Housing Options
Imposing aggressive new tariffs will likely increase construction costs for Santa Cruz developers in the short term. Their potential to reshape housing affordability will most likely happen if some competing forces balance out:
Cost Pressures vs. Demand Shifts
- Material Costs Up: Tariffs on lumber, steel, and finishes could significantly increase construction expenses initially.
- Foreign Demand Down: These new tariffs, combined with eliminating some duty-free thresholds that previous administrations upheld, could significantly deter all-cash foreign investors, a key demographic that has historically driven up Santa Cruz housing prices.
Where Tariffs Could Help Affordability
- Fewer Luxury Developments: High tariffs on imported luxury materials (e.g., Italian tile, German appliances) may discourage ultra-high-end projects, pushing developers toward mid-range homes for local workers.
- Renovation Boom: With new construction costs rising, renovating older homes in Live Oak or the San Lorenzo Valley could become more attractive than tear-downs. ●
- Foreign Investor Retreat: Recent surveys have revealed that California continues to lead as the premier U.S. destination for Chinese real estate investment, with Chinese buyers representing 33% of all international home purchases in Q1 2023. The Chinese and other foreign buyers may pull back, freeing up inventory.
The Rise of the Prefab Revolution
The headlines might focus on lumber prices or rising interest rates, but there’s another force reshaping the Santa Cruz County housing market — and it’s coming from Washington. Tariffs on building materials, especially those tied to Chinese components and Canadian lumber, are driving up the cost of traditional construction. But here’s the twist: it’s giving prefabricated housing a serious edge:
More Predictable Costs for Buyers and Builders Ask any local builder, and they’ll tell you that traditional construction is full of financial wildcards. It's easy to go over budget quickly between labor shortages, shipping delays, and fluctuating lumber prices. Prefab flips that script.
Because everything happens in a controlled factory environment, prefab builders can lock in pricing early and avoid most of the surprises that tank project budgets. That kind of cost certainty is a breath of fresh ocean air for Santa Cruz buyers dealing with already steep real estate prices.
Prefab Builders Can Dodge the Tariff Trap Unlike traditional homebuilders who rely on imported materials (and get hit with tariffs), many factory-built housing manufacturers stick with domestically sourced products. That means:
- They can avoid the extra fees tied to foreign-made fixtures and components.
- They don’t have to gamble on unpredictable supply chains or delays at the port.
- They offer buyers more stable pricing, even when global trade tensions heat up.
Faster Builds = Faster Inventory in a Tight Market With new housing in short supply from Capitola to San Lorenzo Valley, speed matters, and this is where prefabricated construction shines. Because much of the work is done in a factory, homes can be delivered and set up weeks faster than traditional builds. That means:
- Less waiting on subcontractors.
- Fewer weather-related delays.
- Quicker move-ins for families, retirees, and even landlords trying to add ADUs and other home renovations
While tariffs alone aren’t causing the prefab boom, they’re helping it along. By raising the costs of traditional builds, they’re making factory-built homes a smarter, faster, and often more affordable choice in places like Watsonville, Freedom, and beyond.
Yes, There Are Challenges
It is hard to sugarcoat it. Reciprocal tariffs could mean:
- Higher construction cost tariffs, at least at first.
- A slowdown in new building.
- Potentially higher rents if landlords pass on their increased costs.
But if you look at the big picture—more local production, less foreign speculation, and more affordable options—the long-term tariff benefits for real estate in Santa Cruz County could be significant.
The Bottom Line: Hope for Homebuyers?
Trump tariffs aren’t a miracle cure, but they could shake up the market in ways that help you:
- Less competition from foreign investors.
- More American-made building materials.
- More affordable, prefab, and modular homes.
- A possible shift away from those ultra-pricey luxury developments.
FAQs
Q: How do Trump's reciprocal tariffs affect housing prices in Santa Cruz? A: The tariffs (especially the 145% on goods from China, with some items as high as 245%) may cool foreign investment, reducing competition from all-cash buyers. While short-term construction costs could rise, decreased foreign demand might stabilize or even lower prices for local buyers over time.
Q: What are the hidden benefits of reciprocal tariffs for the Santa Cruz housing market? A: Fewer foreign investors outbidding locals, More inventory for working families and first-time buyers, Potential price stabilization after years of unsustainable growth, Boost for domestic builders as reliance on imported materials decreases,
Q: Will tariffs on building materials make homes more expensive in Santa Cruz? A: Initially, yes - lumber, steel, and fixtures may cost more. However, in the long term, local sourcing and modular construction could offset these hikes. The bigger factor is that reduced foreign demand might balance out material cost increases.
Q: How do tariffs impact new home construction in California and Santa Cruz? A: Short-term delays: Higher material costs may slow projects, Long-term innovation: Builders may shift to prefab homes or local materials, Fewer luxury developments: Tariffs on high-end imports could push builders toward mid-range housing.
Q: Can tariffs improve the long-term affordability of homes in Santa Cruz? A: Possibly. Prices could stabilize if tariffs deter foreign speculation and encourage denser, locally built housing. However, zoning laws and construction labor shortages remain bigger hurdles.
Q: What is the effect of Trump's tariffs on housing supply and demand in Santa Cruz? A: Demand: Fewer foreign buyers mean less competition, Supply: Builders may pivot to affordable models if luxury materials get too expensive, Wildcard: If tariffs hurt the tech sector, reduced Bay Area spillover demand could ease pressure.
Q: How do tariffs on Canadian lumber and Mexican gypsum impact Santa Cruz real estate? A: Lumber tariffs may raise framing costs, Gypsum (drywall) tariffs can increase construction costs, Silver lining: More U.S.-sourced materials could emerge long-term.
Q: Are there advantages for Santa Cruz home buyers from Trump's trade policies? A: Yes: Less investor competition means better odds for locals, Potential price dips in neighborhoods reliant on foreign cash, A stronger local economy if domestic manufacturing rebounds.
Q: How do tariffs influence mortgage rates and loan availability in Santa Cruz? ○ A: Mortgage rates: Likely unaffected (set by Fed policy), Loan availability: Lenders may tighten standards if tariffs cause economic uncertainty.
Q: What are the risks for Santa Cruz real estate investors due to tariffs? A: Short-term volatility in construction costs, Lower luxury home demand if tariffs hurt tech wealth, Uncertainty around long-term trade policy.
Q: How might tariffs on construction materials affect rental rates in Santa Cruz? A: Short-term: Landlords may raise rents to cover renovation costs, Long-term: If tariffs reduce foreign investment in rentals, supply could increase.
Q: Do tariffs help protect local builders and developers in Santa Cruz? A: Indirectly. Tariffs encourage local sourcing, but material shortages could offset gains. Small builders may struggle more than large firms with price swings.
Q: What's the outlook for new home construction in Santa Cruz under Trump's tariff policies? A: Slower starts in 2025 due to cost uncertainty, More prefabricated/modular homes by 2026-2027, Focus on affordability if luxury demand drops.
Q: How do tariffs affect commercial real estate development in Santa Cruz? A: Retail/office spaces: Higher build costs may delay projects, Industrial: Could benefit if local manufacturing grows.
Q: What strategies can Santa Cruz buyers/investors use to navigate tariff-related price hikes? A: Wait it out: Prices may dip if foreign buyers retreat, Consider prefab homes: Lower reliance on tariff-hit materials, Target less competitive small towns near Santa Cruz.
If our local leaders play it smart—cutting red tape, supporting local builders, and focusing on middle-class housing—you could see a more balanced, more attainable Santa Cruz County housing market.
The Santa Cruz housing market is currently navigating a complex landscape, influenced by evolving reciprocal tariffs, fluctuating interest rates, and limited inventory. However, strategic planning and informed decision-making can still lead to successful real estate transactions. A knowledgeable local real estate professional can provide valuable insights into the impact of these factors on the Santa Cruz market.
Paul Burrowes, CRS, CCEC, SFR, NHCP, LHC, REALTOR® Licensed REALTOR® with over 15 years of experience and expertise. Commits to being on time and transparent. Acts as your consultant to ensure you make the best decisions to fit your transaction at every step in the process. Negotiates towards a low-stress, win-win outcome. Handles all the details for you, ensuring the hundreds of steps in your real estate transaction go smoothly. Proudly serving Silicon Valley, Santa Cruz, Monterey, and Santa Clara Counties! | DRE# 01955563 | (831) 295-5130 | paul@burrowes.com.
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