Business

Tariffs are making it more expensive to build in Boston — and that could push rents even higher

“This kind of uncertainty is really very bad,” said Tom O’Brien, managing partner of HYM Investments,  which is planning an office tower (rendering above) atop the Government Center Garage.
Pelli Clarke Pelli/CBT Architects
“This kind of uncertainty is really very bad,” said Tom O’Brien, managing partner of HYM Investments, which is planning an office tower (rendering above) atop the Government Center Garage.

Construction in Greater Boston has long been complicated and costly, but a brewing global trade war threatens to make it even harder to get new projects off the ground.

Tariffs imposed recently by the Trump administration on some of the country’s biggest trading partners are driving up the prices of lumber, steel, aluminum, and other building materials. That, in turn, could undermine the financial feasibility of major residential, commercial, and infrastructure developments here.

The stakes are significant: On a major project, a few percentage points’ difference in the price of goods can amount to millions of dollars. In some cases, that could mean higher rents on apartments or more tax dollars spent on a new bridge.

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For developers contemplating what amounts to a massive bet on a multiyear project, the prospect of a trade war is nerve-racking, said Tom O’Brien, managing partner of HYM Investments. He’s closely watching steel prices as his company plans an office tower atop the Government Center Garage.

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“This kind of uncertainty is really very bad,” O’Brien said. “You’re trying to build an $800 million building, and you are going to be locked in [on prices] for four years.”

Construction costs in Boston have risen steadily at 5 or 6 percent a year over the past few years, said Joseph McCoy, chief estimator for Gilbane Building Co. The increases have been driven more by strong demand for skilled subcontractors, and the workers they employ, he said, than by materials.

But that was before the new tariffs on imported lumber, steel, and aluminum — products that are funneled into the Boston market from Canada, one of the countries covered by President Trump’s get-tough trade policies.

In some cases, domestic producers have revved up production in an attempt to meet demand, though not enough to stave off price increases.

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The price of rebar — wiry steel used to reinforce concrete — has jumped from about $900 a ton to as much as $1,300 in recent months, said Frank DiCenso, chief estimator for Bridgewater-based Callahan Construction.

The price of lumber has surged, too, which could have an outsized effect on the mid-rise, wood-frame apartment buildings popping up across Greater Boston.

“Lumber’s a big cost,” DiCenso said. “If you take a 300,000-square-foot building and lumber goes up even $2 a square foot, that’s another $600,000.”

The added expenses come on top of already sky-high land prices, a tight labor market, and rising interest rates, raising questions about just how much more pressure Greater Boston’s long-running development cycle can handle.

“It’s already a tough situation to build here,” said Greg Vasil, chief executive of the Greater Boston Real Estate Board. “This is going to make it worse.”

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To manage the costs, builders are getting creative.

Some contractors and their suppliers are writing contract terms that protect against future price swings.

Others are taking advantage of exceptions to the tariffs. For instance, levies on Canadian goods apply to imported raw steel, including rebar, but not to fabricated steel, such as the pipes and beams used to frame most new buildings. That’s causing some builders to buy more parts north of the border, and then truck them south.

“When there was first talk of tariffs, there was absolute exasperation,” said John Moriarty, whose John Moriarty & Associates is one of the region’s largest builders. “I think people are starting to figure it out.”

Still, some price hikes are unavoidable. A recent contract for new track and signals on the MBTA’s Green Line will cost $74 million — $7.5 million more than anticipated — because of steel price increases, Massachusetts Bay Transportation Authority executive Beth Larkin recently told the agency’s board. Even though federal rules require most transportation projects to source steel domestically, the tariffs threaten to tighten demand and increase prices. A spokesman for the MBTA said it’s monitoring the market.

If prices stay high, more highway, bridge, and transit projects could feel a budget squeeze. State rules allow contractors to request more money if the cost of certain materials, including steel, increases by 5 percent or more while a project is underway.

Bob Berry, chief estimator at the Framingham-based construction company J.F. White — which has won contracts on the Longfellow Bridge and the upcoming North Washington Street Bridge — said future projects will probably be more expensive because of the rising cost of building materials.

“We’re just passing those increases on in our new pricing,” Berry said.

Developers of private projects will probably do the same whenever that’s feasible. If trade tensions continue to escalate, the higher prices of steel and lumber will eventually translate to higher rents for apartments and offices, experts say. Boston already is one of the most expensive places to build — and live — in the country.

“Everybody wants this [development] cycle to continue, and if you look at the fundamentals there’s really no reason why it shouldn’t,” Vasil said. “But you have to build these buildings out of something, and it’s not going to be plastic.”

Tim Logan can be reached at tim.logan@globe.com. Follow him on Twitter at @bytimlogan. Adam Vaccaro can be reached at adam.vaccaro@globe.com. Follow him on Twitter at @adamtvaccaro.