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Last updated: December 10, 2018 • Real Estate Industry

US Tax on Imports and Real Estate

If you’ve read the news in the last couple of weeks, you might have noticed the whole Donald Trump tariffs shebang. Let’s try to explain it in a simple and quick way because the “why”s behind it are not really what we’re interested in discussing, but the “what now?”s of it.

No country can produce everything internally.  Some goods – like some types of fruits – just won’t be able to grow on our soil and weather; other goods could but we wouldn’t be able to produce it sufficiently versus how much we consume it. When there’s something in demand that we can’t produce enough here, we import from somewhere else – like avocados from Mexico – and when we have something we produce more than the internal demand, we export to other countries. Following so far? Okay, so, government has the right to put tariffs or taxes on international trades, and, because this trade goes both ways, it had, in the past, elected to lift the import tax so that the American people could have access to those imported goods our internal industry wasn’t able to supply and, likewise, some other countries to which we would export, would lift their import tax as well, incentivizing, this way, the free trade market. But the Donald Trump tax point-of-view departs from this: his administration has instated the import tax on specific imported goods with a major opponent at sight: China. The first Trump tax plan for imported goods was to charge tariffs on Solar Panels and Washing Machines, both majorly produced at the big red Asian country, and now, the newest US tax on imports concern taxing international trade of steel and aluminum.

Interestingly, as you can probably see for yourself, all of those US tax on imports have repercussions on the real estate industry. And that’s what we aim to discuss in this post: until all of this is settled – it’s a trade war forming; there’s a lot of water to flow under this bridge – there are a few things you should be on the lookout for.

The US tax on imports imposed to washing machines is the least harmful to Real Estate. What bad can come from it? We have American brands that could satisfy the demand for new machines – although much slower and with a problematic price gauge due to lack of competition – and you always have Laundromat places to take care of your dirty clothes.

Now, the Solar Panels import tax is more problematic to the Real Estate market, because it has the ability to impact its landscape as a whole. It’s a known fact that this administration is a big fan of coal and other outdated sources of energy and it’s also known that China is one of the main leaders in green renewable energy, so this part of the Trump Tax plan on imported goods kills two bird with one stone: in a way, it hurts China, one of our main competitors, and helps the coal industry. Since, the real estate industry has been shifting big to solar energy in the last decade, with solar panels becoming a commodity to new high-end houses, the US tax on imports can slow the trend down or even stop it altogether. What will happen is that existing houses with solar panels will become even more valuable because of the presence of it; that’s a given. But regarding leases and the solar panel trap; we don’t know. The solar panel industry might cross their arms and say they shouldn’t have to adapt to this Trump tax plan on imported goods, but they can also react positively and lift their leasing rules to make it easier for the home seller to transport the solar panel to the new home. One thing that is not likely to happen is the mortgage lender easing its regulation to loan the money for the lease. And it shouldn’t. If they do, chances are the rest of the economy goes down with it, in case homeowners start to default: and then it’s 2008 all over again. Financial responsibility regarding loans is an important pillar our economy must be on the lookout for.

But where the going gets tough in Real estate is regarding the US Tax on imports like steel and aluminum.

Steel is a raw material of high demand in real estate. From the small use in faucets and door knobs to the larger use of steel in plumbing pipes and overall construction infrastructure of roads and buildings; steel is a big part of real estate construction. At first, the import tax on steel will slow down construction because of the high prices building a new house will amount to. Later, it will de-motivate the construction industry to work with steel (and aluminum; which also is used a lot, especially in window framing) in construction, figuring out a way to substitute them with other cheaper raw materials. People thinking of doing some home improvement to Increase Your Home Value: bathroom and kitchen updates, the kings of quickly adding value to a home, are not a good idea anymore; better to invest in building a She Shed made mainly of wood, adding Smart Home Devices or coming up with Landscaping Ideas to Improve Curb Appeal of your house.

In a larger sense, the possible damage to real estate imposed by this Trump tax plan is even bigger. It can impact the whole economical eco-system that fuels real estate. Think about it: if the import on steel and aluminum from some of our top importers like Mexico and Canada gets drastically reduced, the hundreds of truckers that used to transport these materials from there to here will have a major occupation shift. Some will manage to maintain the same lifestyle, driving the same routes, transporting another type of freight. Others will, hopefully, get other jobs in other areas, settling down someplace close to their new permanent location. And some will, sadly, just go unemployed. In the two latter cases, the whole dynamic of real estate supply and demand gets shifted. Plus; if it becomes a trade war, some of these countries might retaliate and impose taxes on some of our previously not-taxed imported goods, hurting our ability to compete and expand our profits. Imagine if cement is next on the US tax on imports’ list? What would that do the real estate industry?

So, if you are right now doing any kind of home improvement that involves aluminum or steel, it is possible that you will have the misfortune of hearing your contractor say the proposed budget has to change due to a spike in price that makes it impossible for him to build/repair whatever it is that you are doing. If you can, maybe put this plan on hold, wait to see the next chapters of this war unfold. It could get better, it could get worse, but one thing we know for sure is that it won’t stay the same. Change is coming, so be prepared to know what your role in all of this is, and act on it. Good luck!

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21 Responses to " US Tax on Imports and Real Estate "

  1. masaka lingl says:

    Eduardo, I find your editorial to be completely bias and self serving. It is a shame that you have unfettered access to all these influential readers. Your title alone says it “Trumps tariffs”. Forget the larger picture regarding national security and how we dont produce hardly anything anymore besides software & movies that get stolen. Solar panels? That is the future…solar panels? I’m an appraiser and Realtor in south Florida for the last 17 years and solar panels are utilized in 1% of the homes and from owner interviews they are more trouble than they are worth. From all surveys I can find, they dont ROI until 17-20 years. I would gladly pay an additional 20%-25% for goods and services if it means a stronger more self sufficient economy 5-10 years down the road. You’re not alone with your knee-jerk fear of trade war, but have a little faith. Trump is a negotiator. He’s not going to sink our ship, but he is going to push for a better deal and a more robust brighter future for us all.

    • Eduardo says:

      Hello, Masaka
      You are right: although it ranks third on Solar Potential, Florida barely enters the top 10 states of Solar Energy. That’s largely due to government solar policies that make it harder to develop this technology to homeowners. That’s why you don’t see so much of it. Altogether is a very new type of energy, right? But throughout the country it has grown a lot and showed no signs of slowing down. What we are saying is that, because of this tariffs on solar panels, it’s likely to slow it down. That’s just a fact, we are not judging if it’s good or not.

      Now, in no moment we have established a fear of sinking ship, and the title does not say anything about Trump. We are well aware it’s an ongoing negotiation and, like the first paragraph says, it’s none of our business (and above our comprehension, really) to discuss the whys, the politics of it. We are merely pointing out the possible repercussions of it to real estate. That’s the self-serving we were shooting for. As a whole, of course we can see many positive aspects of this plan and also some negatives; nothing is perfect; don’t you agree? Thank you for your message

      • masaka lingl says:

        Dialog and analysis is always good. Thanks for the reply.

        • masaka lingl says:

          I apologize; the email header came through my inbox as “Trump’s Tariffs are already impacting Real Estate: find out how!” Not your specific article.

  2. Casey Madison says:

    I would like to see the numbers relating to how many homes in the US have solar panels, and the amount of dollars the solar panel industry contributes to the overall GDP. I don’t think it’s a high number if for no other reason than aesthetics, lol. They are ugly, sorry. I don’t regularly see them here in Texas, where you would think we would considering the weather. Also, I am not familiar with the “leasing” scenario. May be a regional thing? Texas mortgage lenders do not lend on leases period, so I really have no idea about that. Interesting article.

    • Eduardo says:

      Hey, Casey! Thanks for the comment!
      You are right, it is a regional thing… actually, not even that: it’s a company thing. It depends on the company doing it.
      What we’re saying, especially in the article linked (The Solar Panel Trap) is that consumers should be aware and the Real Estate Industry as a whole should think about that problem because we don’t want homeowners dissatisfied giving up from the idea of selling their home because of the financial loss they’ll have by not using the solar panels; we want the wheel to spin, right?

      And regarding Texas, you are right again: the solar potential of the Lone Star is amazing! That’s why it was ranked the #3 (and growing) state for solar jobs in 2017!

  3. I’m an agent and I’m for the tariffs. As President Trump has stated over and again, international trade has not been fair and has resulted in too many jobs leaving the US. This article appears bias and doesnt adequately provide all of the other pertinent information regarding how tariffs will help bring much of the production of steel and aluminum back to the US and create more jobs. More jobs means more money available to people to buy homes. They way I see it this, like the tax breaks, helps the real estate industry and helps those who would otherwise not be able to purchase a home.

    • Eduardo says:

      Hey, Anette
      Thank you for your opinion!

      We’re sorry you thought it appeared biased, we try to be as impartial as we can and we truly believe that, right now, there’s no way of telling if it’s “good” or “bad”. That’s why in the last paragraph we highlighted that change is a certainty. Right now we are in the middle of a negotiation, so the moment is highly transitory, don’t you agree? Now, regarding bringing the production of steel and aluminum to the US (not back, because from what we’ve researched the production of those raw materials never decreased, rather increased – the problem was that our demand for those materials outgrew it by a lot) there needs to be a plan (and money applied to that plan) to make that happen; and that hasn’t been announced as of yet. Let’s hope it comes! Thanks again for bringing good points to the discussion!

      • Alex Schauffert says:

        What is your agenda and who is paying for it. Our steel production is but a small fraction of what it was decades ago and due to our lack if infrastructure development over the last several decades our steel consumption is down. You know all this yet you repeatedly lie.

  4. Alex Schauffert says:

    FYI.. There is around $100 import wholesale cost of raw steel in a home and by the way, none in the pluming,so if there was a 20% tariff it would raise the cost of a home by $20.(how terrible) If the US started producing more washing machines it would mean more American jobs. (how terrible) If the US started producing more solar panels it would mean more American jobs. (how terrible) China is currently the worlds largest consumer of coal and the world’s highest polluter. People living in China haven’t seen a star for over 20 years due to pollution. Many people in China won’t leave their home without wearing a mask. There are NO countries that give US imports an unrestricted, tariff free path that we are imposing import tariffs on.

  5. Kimberly says:

    It made me very happy to read the replies to Eduardo’s article. I too agree it’s a bit biased. I do think the article was very easy to read so that was nice, but the bias is very much there. Then again this seems to be more of an opinion article anyway so you are welcome to have your own opinion and I respectfully disagree with it. I’m a real estate agent in Seattle and some people do solar panels here (few and far between) but they don’t tend to raise the value a whole lot. People who are into ‘green homes’ like it but it doesn’t provide thousands of dollars in extra equity if a home does have it. I’ve also had clients say they don’t like it.

    • Eduardo says:

      We are also very happy to see polite discussion of it, Kimberly. If anything, these channels were created with the intention of having people from the real estate industry debating and exchanging ideas!
      To help us have a larger view of it, could you further talk about the clients that don’t like the solar panels? What about it that they dislike?

      • Alex Schauffert says:

        As a 21 year RE veteran and CA broker and previous photo-voltaic company owner, I have been in numerous transactions involving homes with solar panels installed. An ROI typically is calculated to happen at around 17 years, far less than a solar panel’s life expectancy, but that depends on the cost of money and the future cost of electricity which could shorten the ROI time. On the flip side, solar equipped homes usually sell for an average premium of around 1/2 the cost of the panels. Ad to that the very high cost of R&Ring the panels when you need to re-roof and they are often not as financially advantageous as marketed. Due to electrical tier pricing, cutting consumption with energy efficient appliances often yields a far better return. In actual use their reliability is less than that of the major power companies though this seldom interferes with daily electrical usage, just supply point. Some solar suppliers have better service plans than others.

        I think of them as the model T Ford of modern times. I firmly believe it is a very good move in the right direction for society and the planet but will be at the cost of visionaries until costs come down to around $4.00 a watt installed, down from the average $7.00 per watt current prices, or electricity nearly doubles in cost. Solar panels are actually available at $1.00 a watt but that is like comparing the cost of roof shingles to the cost of re-roofing.

        • Eduardo says:

          Hey, Alex
          Thanks for the great insight!

          I would like to add that the solar panel’s technology has been improving a lot.

          Nowadays, the majority of solar panel’s manufacturers offer a 25-year warranty for their solar panels. Like these sources say: https://www.engineering.com/DesignerEdge/DesignerEdgeArticles/ArticleID/7475/What-Is-the-Lifespan-of-a-Solar-Panel.aspx and http://energyinformative.org/lifespan-solar-panels/

          Since you trailblazed the photovoltaic business, you are aware this is a very new technology; most of the solar panels out there are less than 10 years old. So, you’re right! It’s a risk, and people shouldn’t jump on the bandwagon just because it’s the new trendy thing. But there’s the other side to it, like the great analogy you made with the T FORD.

          In the end, it seems that – for most of the things in life, actually – the middle path (balance) is the best way to go, right? Not so much there, not so much here.

          Thank you for your thoughts

  6. Matt Grohe says:

    I see these tariffs ad having a nominal, if not nonexistent effect on real estate. The US has a 1.5% tariff on imports vs. 3.5% for China, which is more than double. https://data.worldbank.org/indicator/TM.TAX.MRCH.WM.AR.ZS

    China is historically an unfair trade which the Obama administration realized when it imposed tariffs on solar panels, wind towers and 18 other products.https://www.reuters.com/article/us-usa-china-trade-wto/china-partially-wins-wto-case-over-obama-era-u-s-tariffs-idUSKBN1GX28D.S

    Somehow we survived. China is also well known to dump solar panels to the detriment of the targeted countries and their solar panel makers, neither which is mentioned here. https://www.nytimes.com/2017/04/08/business/china-trade-solar-panels.html

    Maybe you don’t realized it but this essay is both condescending, starting with the smug “Following so far?” and overtly biased towards one point of view, the negative. A fair and informative piece of writing, which this is neither, would explore the issue and this does not. Instead it reads like one of so many thinly view hit pieces that flood news feeds daily and are against the Trump administration’s trade efforts which seek to establish fair trading practices and bring jobs back to the USA. Both of which should increase GDP, wealth for our nation and ultimately raise property values. The link to coal is tenuous and in my view seeks to muddy the waters of this issue by injecting an element of obsolescence as a bogeymanish sort of spectre.

    The writer should just admit what he’s trying to do with this opinion, and that’s cast aspersions on Trump’s trade initiatives. As far as credibility I think that’s lacking with an author who seems to be both credential light and lacking a last name. This isn’t anything I’d ever share except as an example of poor reasoning, fear mongering and faulty assumptions. The real estate industry has for the most part avoided the torrent of this type of “news” but it’s definately creeping in. Hopefully poor reception and intellectual incredulity will keep it out.

  7. Rose Johnson says:

    LOL
    Triggered, much?

    I did not read this article as anti-tariffs but it’s enough to read Trump’s name on something for its fans to rush in and protect him (and that shows how they know everything he touches gets ruined)

    • masaka lingl says:

      Comments on an editorial do not constitute a triggering. and from what I’ve seen everyone has read the article and has contributed valid points. I think it is typical for someone of your ilk to be open-offhandedly dismissive of all things Trump. For every finger you point there are usually 3 pointing back at you.

    • Dale Beaver says:

      Jobs are better taxes are down income is going up less unemployment negotiations with North Korea I’m not sure where you’re coming up with everything he touches gets ruined what exactly are you reading we do need to deal with the trade imbalance and Trump’s exactly the one that can negotiate Fair Trade for the US.

  8. A.L. BRADY says:

    For the most part, this discussion is healthy and an opportunity to attempt to learn by “walking in another’s shoes” while looking positively for a common agreement even about possible negatives.

    But…I feel we need to take care about for-telling absolutes as the destined results whatever the announced Goal may be. There is wisdom and truth in the fact that we just might be creating a “self-fulfilling prophesy”; i.e., what we think and envision becomes the reality.

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